"Roaring Kitty"(Keith Gill) Faces 10(b)(5) Securities Fraud in "Doomed" GME Lawsuit
Did he Mislead Investors with Social Media Posts?
Hey everyone! Welcome to July. I’ve got something interesting to share with you. Can you guess what it is?
Keith Gill, known for his role in the 2021 GameStop short squeeze, is facing a class-action lawsuit. This lawsuit stems from recent social media posts that allegedly influenced the price of GameStop (GME) stocks. However, legal experts believe the case is unlikely to succeed.
Background on the Lawsuit
Gill faces securities fraud allegations Source: CourtListener
The lawsuit, filed on June 28 in the Eastern District of New York, accuses Gill of orchestrating a "pump and dump" scheme through his social media activity starting on May 13. The complaint alleges that Gill committed securities fraud by not adequately disclosing his purchase and sale of GameStop options, misleading his followers and causing financial losses for some investors.
Plaintiff's Claims
Plaintiff Martin Radev, represented by the law firm Pomerantz, claims he was harmed by Gill's actions. Radev purchased 25 GME shares and three call options in mid-May, based on Gill's social media posts.
Gill's Social Media Activity
Gill, who had been on a two-year social media hiatus, returned on May 13 with a series of cryptic memes posted to his X account. This sparked a 180% surge in GameStop's stock price, from $17.46 to $48.75 by the end of trading on May 14. On June 2, Gill disclosed a significant position in GameStop, including 5 million shares and 120,000 call options expiring on June 21, 2024. This caused another surge in GME's price, closing above $45 that day.
By June 13, Gill announced he had exercised all 120,000 options, realizing millions in gains and using these profits to buy more GameStop shares. The lawsuit argues that Gill did not sufficiently disclose his intent to sell his options, misleading his followers and other market participants, resulting in investor losses.
Legal Expert's Opinion
Eric Rosen, a former federal prosecutor and founding partner at Dynamis LLP, believes the lawsuit is "doomed from its inception." In a June 30 blog post, Rosen suggested that a "well-crafted" motion to dismiss by Gill could easily end the case.
Rosen pointed out that it is difficult to prove someone is a "reasonable investor" based solely on the price impact of Gill's social media posts, rather than the actual content of those posts. He argued that purchasing securities based on innocuous tweets from "Roaring Kitty" is not reasonable.
Challenges in Proving Fraud
Rosen emphasized that the core of a fraud case is proving that the defendant intentionally misled investors by failing to disclose important information. He explained that it would be challenging to convince a judge that random memes posted by "Roaring Kitty" on social media constitute claims that can be inherently proven or disproven.
While the lawsuit against Keith Gill raises serious allegations, legal experts like Eric Rosen believe it is unlikely to succeed. The burden of proving securities fraud based on social media activity presents significant challenges for the plaintiffs.
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