Reddit user Keith Gill, better known as u/TheRoaringKitty, is being sued for portraying himself as an amateur investor to manipulate GameStop’s stocks. Although the saga of the Wall Street Bets subreddit and large hedge funds has dwindled in the past few weeks, with stocks returning to around $45 per share, there are still several loose ends to be tied for the companies that lost millions or billions of dollars. This lawsuit is the latest development in that story, and the aftermath could have serious effects on how hedge funds and the market itself conducts its business.
In short, Gill was a driving force in inciting the r/WallStreetBets community to purchase GameStop stock in huge quantities. This was achieved by pointing out the number of hedge funds that regularly “short” GameStop due to its declining status, a practice that involves borrowing and selling shares in the hopes that stock prices will decrease by the time the shorters were required to “return” the borrowed stocks. Once the stock prices were massively inflated, these shorters were forced to spend millions of dollars (at least) buying stock to replace the stock they borrowed. The goal of all this was seemingly to punish the shorters for taking advantage of a declining business to become rich.
According to Bloomberg, the lawsuit claims that Gill misled r/WallStreetBets by characterizing himself as an amateur investor when he is actually a licensed securities professional and only sought to benefit himself. Through his “deceitful and manipulative conduct,” the suit states that Gill caused huge losses for companies and tricked amateur investors into purchasing GameStop stock at inflated prices. Furthermore, the suit claims that he characterized large hedge funds as “villains” deserving of punishment, which resulted in the defamation and financial losses of Melvin Capital Management, Citadel LLC, and the Robinhood app itself, which many amateur investors use to purchase and sell shares. Coincidentally, the plaintiff in the case is Christian Iovin, an investor who sold $200,000 worth of call options on GameStop shares before stock prices jumped from under $100 to over $400. This places Iovin in the same situation as the hedge funds whose attempts to short-sell GameStop backfired.
Executives from these companies, as well as Reddit, are scheduled to testify on Friday alongside Gill himself. The results of this case could possibly be far-reaching, as the GameStop stock episode went so far as to call the attention of the White House. Massachusetts Mutual Life Insurance Co., one of Gill’s previous employers, is also a defendant in the lawsuit, and a spokeswoman has said that they are reviewing the case and do not currently have any comments.
While manipulating stock prices is undoubtedly illegal, the crux of this lawsuit will most likely come down to whether it can be proven that Gill actually misled the r/WallStreetBets community or did any of this for profit. Over the past month, many stories have been written about the amateur investors donating their “earnings” to children’s hospitals, aiding families with their medical bills, or holding onto their stocks despite being able to cash out for tens of millions of dollars. Additionally, Gill did not tell the community anything inherently untrue; many hedge funds have habitually shorted GameStop with no consequence for years, and it would be difficult to blame him entirely for the community’s response to this knowledge. The most damning piece of evidence that Gill lit this spark for personal gain would be if he personally sold his shares for a significant profit, which remains to be seen. Barring that, the suit’s plaintiffs may have an uphill battle ahead of them.
Source: Bloomberg
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1 Comments
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