When Roaring Kitty came back to social media nearly a month ago, shares of GameStop Corp. jumped, but is that enough to qualify as market manipulation?
A former SEC prosecutor thinks it warrants investigation.
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The issues being raised are whether Roaring Kitty broke any laws by posting on social media. Since Roaring Kitty has a large following of retail investors (1.4 million on X — the former Twitter — alone), regulators may try to determine whether he intentionally led people toward GameStop for his own financial gain.
Keith Gill, the man originally associated with the Roaring Kitty and DeepF—ingValue social-media accounts, did not immediately respond to a request for comment when messaged through Reddit.
Read more: Massachusetts securities regulator ‘looking into’ Roaring Kitty’s activities
On Sunday, May 12, Roaring Kitty’s account on X came back to life and started sharing memes. The following day GameStop shares rose 74.4%, and they jumped another 60.1% the next day.
Then on Sunday, June 2, Roaring Kitty began posting on its old Reddit account. This time, sharing screenshots of an E-Trade account, which showed a position in GameStop GME worth hundreds of millions of dollars. GameStop shares rose 21% the following day.
There’s no denying that many people associate Roaring Kitty with the meme-stock, and GameStop, movement among retail investors. After all, he was one of the early retail traders expressing belief in GameStop’s potential in 2020. But does that mean he acted illegally?
To find answers, it may take the involvement of the Securities and Exchange Commission, and, given the magnitude of the GameStop trading action following the meme posts, there may be a good chance the SEC will get involved.
“The SEC will undoubtedly look askance at Gill’s sudden return to social media and the tripling of GameStop following his cryptic tweets, even though [those posts] never mention GameStop,” Arthur Jakoby, a securities litigator and former SEC prosecutor, told MarketWatch.
“Under the securities laws it is unlawful for any person to engage in any transaction, practice or course of business which operates or would operate as a fraud or deceit upon a purchaser.”
What is market manipulation?
Does posting memes count as fraud or deceit? According to the SEC’s Investor.gov website, market manipulation happens when someone artificially affects the supply or demand of a security.
This can happen when traders place large deceptive orders to artificially move prices (through things like wash trades, bear raids, layering or spoofing), spread false or misleading information about a company or security, or hype up a security with the intention of immediately selling it (i.e., a pump-and-dump scheme).
“There’s no question that, in the absence of any financial news, Gill’s tweets were the primary mover of GameStop’s price trajectory. If Gill profited, the SEC could allege that Gill intended his tweets to push up the stock price so that he would profit and thus the tweets constituted a ‘practice or course of business’ used to deceive buyers,” Jakoby said.
However, if the SEC does pursue litigation, lawyers may have to prove Roaring Kitty intentions behind the memes and portfolio snapshot, which could be a challenge. On top of that, there’s the extra layer: proving that the person behind the recent Roaring Kitty posts is actually Keith Gill.
“It would certainly be a unique case with precedent-setting issues and plenty of headlines. And that alone might be enough spark the interest of the SEC,” Jakoby added.
SEC chair Gary Gensler spoke on CNBC early Wednesday about the GameStop situation, declining to say whether there was an investigation but emphasizing the importance of not misleading the public in order to avoid legal issues.
“You have to make sure you don’t mislead the public, and that you don’t, in any way, do things in the market that may be manipulative or misleading,” Gensler said. “That’s the key thing in our capital markets.”
The big question is whether Roaring Kitty’s posts count as manipulative or misleading. Sharing information about one’s stock holdings or making predictions isn’t necessarily illegal. Many financial firms set price targets for certain stocks, and short sellers sometimes publicize their positions, too.
For example, Andrew Left of Citron Research revealed his own position when he told reporters he was shorting GameStop again last month, even after his firm lost 100% of its investment shorting the stock in 2021. But despite trading against Gill (and often disparaging him) Citron Research doesn’t think that Roaring Kitty acted illegally.
“For the record, I don’t think anything Kitty did was illegal,” read a post on the firm’s account on X. “Assuming Kitty does not have MNPI, he has the right to make a large bet and tell everyone. He cannot predict the reaction.”
(MNPI stands for material nonpublic information. Using this type of information for your own financial gain is illegal.)
Another interesting layer to the Roaring Kitty drama is that he allegedly held his positions through Monday’s price movements. On Monday after the market close, the Reddit account posted a screenshot similar to the Sunday night post, showing that the account hadn’t sold any of its GameStop shares or call options. If Roaring Kitty wanted to lock in profits, he could have sold, but instead the gains remain only on paper.
Some regulators are already looking into the investments in GameStop. Securities regulators for the Commonwealth of Massachusetts told MarketWatch that they were “looking into” the trading activities and that the investigation was ongoing. The Wall Street Journal reported that the SEC was broadly looking at GameStop call-options information (not specific to Gill) around the time of Roaring Kitty’s posts to determine whether there were signs of market manipulation. Meanwhile, E-Trade, which is where Gill holds his GameStop position, is considering kicking him off the brokerage platform, the Wall Street Journal reported.
This isn’t the first time regulators have looked into Gill’s involvement with GameStop. He was forced to testify in front of Congress after the 2021 meme-stock craze. In his testimony, Gill made the argument that he was just an individual investor who was making investment decisions based on public information and that he wasn’t pressuring hoards of retail investors to follow his investments.
At the time, lawmakers were less interested in Gill’s actions than those of the executives at brokerages and hedge funds. It seemed as though their actions, such as Robinhood Markets Inc.’s HOOD decision to halt trading, affected more people’s trades. Gill didn’t face any criminal penalties, but his employer, MassMutual, was fined $4.75 million for not properly disclosing that one of its registered brokers held such large positions. Gill no longer works at the insurer and financial-services company.
But are Roaring Kitty’s actions in 2024 different from those of 2021, and could the recent action warrant legal remedy? That’s what regulators have to figure out.
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