Did Keith Gill, Aka Roaring Kitty And His GameStop Antics Violate Securities Laws? - Sun and Planets Spirituality AYINRIN
Keith
Gill, aka Roaring Kitty, is back to trading GameStop three years after
appearing before Congress. Photographer: Daniel Acker/Bloomberg
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Keith
Gill's return has done more than just shake up GameStop's stock
price—it's also sparked a series of questions with no obvious answers.
Since
spearheading the GameStop frenzy of 2021, Gill, better known as
“Roaring Kitty” or “DeepF***ingValue,” has kept a low profile. Following
his headline-making testimony before Congress early that year, he faded
from the public eye, stepping away from YouTube and WallStreetBets
where he had kickstarted a meme stock revolution. But, even out of
sight, Gill wasn't forgotten—he was the protagonist portrayed by Paul
Dano in the 2023 film “Dumb Money,” and mentioned in a slew of books and
documentaries.
So,
it's hardly shocking that even after three years of silence, Gill's
influence seems to have only grown in power. Following his now-famous
May 13 gamer tweet, which shows a man leaning forward in a red office
chair, holding what looks like to be a video game controller, GameStop’s
stock leapt from $17.46 to $30.45. Over the next four days, his
TheRoaringKitty account on X was a flurry of activity, posting over 100
times. Each post was cryptic, leaving his over one million followers to
decipher what, if anything, he wanted to say.
Following
a brief two-week pause, Gill resurfaced on June 2 with a post of a
green Uno reverse card. Shortly thereafter, a Reddit post, purportedly
by Gill, but unconfirmed, claimed he now controlled $180 million in
GameStop stock and options.
Is
he manipulating the market, albeit indirectly, by not explicitly
mentioning GameStop in his communications? And where did he find the
funds to place a nine-figure bet?
When you ask securities lawyers if Gill has broken any rules, the opinions vary.
Christina
Sautter, a professor at the Dedman School of Law at Southern Methodist
University, says Gill hasn’t crossed any lines.“
Under
securities laws, there's two different paths to showing market
manipulation,” Sautter said in an email. And she doesn’t think Gill has
done either.
Courts
require three things to prove a violation of Section 9(a)(2), says
Sautter: a deliberate attempt to manipulate a stock, a financial
interest in that stock, and the creation of an artificial price.
Similarly, Rule 10(b)(5) targets actions that deceive investors by
artificially inflating or deflating stock prices. “I don’t see how
posting memes – even the one with GameStop and Ben Affleck – rise to the
level of showing a manipulative motive or willfulness.”
Peter Molk, a professor at the University of Florida, says there’s an argument to be made in both directions.
“He's
not referencing GameStop by name, which weighs against market
manipulation liability,” Molk said in an email. “You could argue that
someone can be liable if he knew or should have known the consequences
of his actions - this happens particularly with insider trading cases -
and given the track record and history here, the argument would be he
should have known how his posts would affect market prices. Lots of
interesting issues in this area.”
Given
that Gill's return to social media led to GameStop's stock more than
tripling in price following his tweet—with no corresponding corporate
news to justify the surge—his recent posts could potentially open the
door to scrutiny from the SEC. On June 3, GameStop’s stock rose from its
prior close of $23.10, to an intraday high of $40.50, before ending the
day up 20% at $28 even.
“All
that I can say is that, while I haven’t seen anything posted by Gill
that seems deceptive in any real sense, the SEC hates it when somebody
makes hundreds of millions of dollars by doing things that seem
unrelated to, or even destructive of, the normal functioning of
securities markets,” Charles Korsmo, a law professor at Case Western
Reserve, said in an email.
According
to Korsmo, this situation might be just enough for the SEC to step in
and “make his life difficult,” though he acknowledges that pursuing an
enforcement action would be “breaking new ground.”
Of
course, the Securities and Exchange Commission will view all of this
with the benefit of hindsight, said Joan MacLeod Heminway, a law
professor at the University of Tennessee. And what they’ll potentially
see is that Gill’s own broker was raising questions of its own.
The Wall Street Journal reported
on Monday that E*Trade, where Gill has an account, has questions of its
own. Citing sources familiar with the matter, the paper said that the
brokerage was considering kicking Gill off the platform over concerns of
“potential stock manipulation.”
“Right
now, we may be too close to the Reddit and X posts to be able to see
them fully in context,” Heminway said. As of now though, she thinks any
claim of manipulation would be difficult to make.
Then
there’s the lingering question of where Gill sourced the funds to
purchase over $100 million in stock and options. This assumes, of
course, that the snapshot on Reddit displaying his positions and their
costs genuinely originated from him and accurately reflects what he
paid.
At
the peak of the 2021 GameStop rally, Gill’s net worth—assuming his
reports of his positions were accurate—would have reached around $50 million. That’s a far cry from what he would have needed to stake his latest claim.
Gill did not respond to a request for comment.
Aside
from Gill disclosing the source of his funds, one plausible scenario is
that he made a fortune on a short-dated, out of the money options trade
in May and rolled it all back into GameStop stock and options in June.
In
the Reddit screenshot, Gill displays his purchase of 120,000 June 21
$20 call option contracts at $5.68 each. FactSet data confirms that
these contracts started trading around that price on May 17, coinciding
with the last day of Gill’s tweet spree. Maybe, and this is just a
guess, he stopped tweeting as he was loading back up.
Or,
maybe he caught lightning in a bottle twice, throwing all his initial
winnings into Nvidia, which is up ninefold since February of 2021 and
had half a billion dollars to play with, and was looking to settle a
score.
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