The return of the meme frenzy’s central figure to social media has caused high volatility in GameStop stock and other meme stocks. Is he doing something wrong?
Keith “Roaring Kitty” Gill is an ordinary trader who became known primarily between 2020 and 2021 for spreading his unconventional investment theses on GameStop (NYSE:GME) via his YouTube channel. His influence led hundreds of thousands of investors and traders to bet on GameStop, resulting in a massive short squeeze and the start of the so-called “meme frenzy,” where several heavily shorted stocks performed exceptionally well as retail investors squeezed short sellers.
Keith Gill’s Testimony on GME Trades
The dramatic events surrounding GameStop’s trading performance in 2021 reached such proportions that they resulted in a U.S. court investigation. Keith Gill was summoned to testify before a U.S. House panel alongside top hedge fund managers. Gill’s testimony was highly anticipated due to his significant role in driving interest in GameStop through his online presence and investment strategies. His “I like the stock” statement was particularly notable, as the public and financial community sought to understand his perspective on the stock’s dramatic price movements and the broader implications for the market.
Although the information provided does not detail any specific court case or legal action directly involving Roaring Kitty and GameStop in 2021, it was reported that Gill’s former employer, MassMutual, faced a fine as part of a settlement with Massachusetts regulators. This could be indirectly related to the broader scrutiny of the GameStop saga.
Following the trial, Keith Gill withdrew from social media and public life, leading to widespread speculation among GameStop shareholders about his whereabouts.
Roaring Kitty: The Return
In May of this year, Roaring Kitty returned to social media three years after the massive GameStop squeeze. A single tweet of a meme was enough to ignite bullish sentiment among GameStop’s retail investors. On May 13th, the video game retailer’s stock surged almost 185%, leading to nearly $1 billion in losses for GameStop’s short sellers over just two trading sessions.
Although the rally was shorter in both scale and duration this time, Roaring Kitty’s comeback made it clear that the meme mania is still alive. More recently, on June 2nd, Keith Gill posted on Reddit under the alias DeepF**kingValue, providing an update on his GameStop holdings. He revealed that he holds 5 million GameStop shares, 120,000 June 21st $20 GME calls, and another $29 million in cash, totaling $210 million in assets.
Once again, the market reaction was overwhelming. GameStop shares jumped more than 70% during pre-market trading and closed the session on June 3rd up 25%.
The Kitten Under Scrutiny
Roaring Kitty’s presence and its impact on GME stock momentum have concerned some market participants. According to the Wall Street Journal, citing unnamed sources, E*Trade is considering removing Gill over concerns of stock manipulation related to his purchases of GameStop stock shortly before the recent meme stock frenzy. It was also reported that the SEC is closely monitoring GameStop’s options activities.
However, there are also defenders of Keith Gill. Jim Cramer, host of Mad Money and often seen as a “nemesis” of meme stocks by retail investors, stated that there’s nothing wrong with posting one’s options positions.
Additionally, the Unusual Whales website pointed out the disparity in scrutiny, noting that while there is significant attention on Keith Gill’s public participation, there is little noise regarding trades made by members of Congress.
The Verdict
It’s astonishing to think that a social media user posting memes about various random subjects can significantly influence retail investors to buy a particular stock en masse, not necessarily based on the company’s fundamentals.
In the U.S., it is generally legal for individuals to post videos about stocks and trading ideas. The key distinction lies in the language used in these videos. If a person merely shares ideas or opinions about stocks and trading strategies, it is typically considered within the bounds of the law. However, if someone explicitly instructs or encourages others to buy or sell specific stocks, this could potentially be seen as providing financial advice, which might have different legal implications.
In 2021, Keith Gill was cleared of any conflict of interest, and the current situation regarding his return seems similar. It turns out that, somewhat unintentionally, Gill has acquired a tremendous influence over retail investors, and his mere memes can cause massive volatility in certain stocks. This volatility can result in massive losses for institutional investors and short sellers, potentially triggering a strong reaction that pressures regulators to take extraordinary actions regarding conflicts of interest.
With the massive surge in GameStop stock over just two trading sessions, the company managed to issue 45 million new shares and raise $933 million, which is close to a fifth of its total annual revenues. This raises questions about whether GameStop’s management anticipated such a reaction to Keith Gill’s return. However, it would be insane to think this was a planned decision.
In theory, posting memes and sharing one’s portfolio on social media doesn’t constitute market manipulation. But within the context involving billions of dollars, meme stocks, and powerful hedge funds, there are loopholes that could be interpreted as some form of manipulation.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content)
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