Roaring Kitty Faces Securities Fraud Lawsuit Over GameStop Posts

Popular trader Roaring Kitty faces a class-action lawsuit. He is accused of manipulating GameStop’s stock price through social media.

Retail trading legend Keith Gill, known as Roaring Kitty, is embroiled in a class-action lawsuit for alleged securities fraud involving GameStop stock.

The lawsuit, filed on June 28, contends that Roaring Kitty manipulated GameStop’s stock price through his influential social media presence during May and June 2024.?

Roaring Kitty’s Post Propelled 74% Price Boost in GameStop Shares

According to a class-action lawsuit filed in the United States Eastern District of New York, Roaring Kitty is accused of orchestrating a “pump and dump” scheme through social media posts.

Roaring Kitty/Deep Fucking Value is being sued for securities fraud. This is a class action lawsuit, filed by a person who bought GME at what they claim was an artificially inflated price.https://t.co/0Opn8i7zVA

— Chairman Birb Bernanke (@Bonecondor) June 30, 2024

The lawsuit alleges that Gill strategically began purchasing GameStop call options at relatively low prices on E*Trade starting May 12, 2024.?

The following day, he made a comeback on social media platform X with a meme-post.

pic.twitter.com/YgjVqtgcNS

— Roaring Kitty (@TheRoaringKitty) May 13, 2024

On June 2, he posted on Reddit, disclosing his substantial holdings in GameStop. It included 120,000 call options and 5 million shares of stock.?

Holding 120,000 call options granted Roaring Kitty the right, but not the obligation, to purchase 120,000 shares of GameStop stock at a predetermined price (strike price) within a specified time frame.

This disclosure triggered a sharp increase in GameStop’s stock price, with shares soaring over 70% in early premarket trading on June 3.

Later that month, Roaring Kitty revealed on Reddit that he had exercised all 120,000 call options, resulting in an enormous profit. He claimed to use it to acquire an additional 4 million GameStop shares valued at $262 million.

However, GameStop’s stock price plummeted by 15.18% in the three following trading sessions, wiping out significant value.

The plaintiffs in this case, led by Martin Radev and represented by Pomerantz LLP, accuse the trader of orchestrating a classic pump-and-dump scheme. They allege that his actions misled other investors, who suffered financial losses following the influence of Roaring Kitty’s posts.

Radev and others are pursuing legal action, alleging financial losses from the subsequent stock price decline.

Roaring Kitty’s Lawsuit Holds No Water?

Former federal prosecutor Eric Rosen cast doubt on the lawsuit against Roaring Kitty, expressing skepticism about its prospects for success. He made this known in a recent blog post.

Rosen argued that expecting the stock trader to hold his options until their exact expiry date was unrealistic for any prudent investor. He also challenged the lawsuit’s foundation, which relies on investors’ decision-making based on social media posts.

https://twitter.com/amitisinvesting/status/1807587523050328075

While Gill has cultivated a reputation within the retail trading community, some seasoned traders are unimpressed by his actions. Veteran NYSE floor trader Peter Tuchman expressed his displeasure with how social media has impacted trading decisions recently.?

Tuchman, who has over 40 years of experience in the stock market and is affectionately nicknamed the “Einstein of Wall Street,” believes investing in meme stocks is nothing but gambling.

“Social media has created this platform of envy, jealousy, need, and greed. That’s the bottom line,” Tuchman told Yahoo Finance in an interview last week.

Tuchman also expressed deep concern for many of Gill’s followers, stating that many of them would lose their funds.

“We are at the crossroads of so many young investors and traders who come to me, who are still long in GameStop from $480 from the first debacle, and now they are returning to the well to get themselves in trouble again,” Tuchman stated.