Keith Gill, a prominent figure in the stock trading community due to his involvement in the 2021 GameStop short-squeeze, is currently embroiled in a securities fraud lawsuit. This legal action stems from a series of social media posts that allegedly triggered dramatic fluctuations in GameStop’s stock price between May and June of a recent year.
Despite the lawsuit, a former federal prosecutor has expressed skepticism about its prospects, suggesting it is likely to fail. Filed on June 28 in the United States District Court for the Eastern District of New York, the complaint accuses Gill of orchestrating a “pump and dump” scheme through cryptic social media messages beginning on May 13.
The lawsuit, brought forth as a proposed class-action complaint, specifically alleges securities fraud against Gill. It claims he failed to properly disclose his transactions involving GameStop options calls, misleading his followers and causing financial losses for some investors. Martin Radev, represented by Pomerantz LLP, cited personal injury from the alleged scheme after purchasing GameStop shares and call options in mid-May.
Gill, known online as “Roaring Kitty,” returned to social media on May 13 following a two-year hiatus, posting cryptic memes that triggered a significant 180% surge in GameStop’s stock price, which soared from $17.46 to $48.75 by the close of trading on May 14.
In a subsequent Reddit post on June 2, Gill disclosed holding a substantial position in GameStop, including five million shares and 120,000 call options expiring on June 21. This disclosure led to another surge in GameStop’s price, which closed above $45 on that day. By June 13, Gill announced that he had exercised all 120,000 options calls, realizing millions of dollars in gains, which he reinvested into additional GameStop shares.
Following Gill’s resumption of social media activity, the price of GameStop shares experienced volatile swings, prompting accusations in the lawsuit that he failed to adequately disclose his intention to sell options calls, thereby misleading investors.
Eric Rosen, a former federal prosecutor and founder of Dynamis law firm, criticized the lawsuit in a blog post on June 30, stating it was “doomed from its inception.” Rosen argued that the claim regarding Gill’s disclosure obligations would not likely succeed in court, as investors cannot reasonably expect such specific disclosures about trading intentions from social media posts.
Rosen further contended that the lawsuit appeared to capitalize on the market impact of Gill’s posts rather than proving deliberate misinformation. He emphasized that proving fraud typically requires demonstrating intentional deception or outright falsehoods, elements he believed were lacking in this case.
In summary, the legal dispute surrounding Keith Gill underscores the complexities of securities law in the context of social media influence on financial markets, highlighting the challenges in defining investor expectations and legal responsibilities in the digital age.