Were Roaring Kitty’s GameStop posts illegal? A former SEC lawyer explains the recent scrutiny.

Partner and co-chair of Herrick's Securities Litigation and Enforcement Group, Arthur G. Jakoby, spoke with MarketWatch about whether the Securities and Exchange Commission ("SEC") will interpret Roaring Kitty's recent social media posts about shares in GameStop's stock as a violation of market manipulation laws.

The article noted that on May 12, 2024, Keith Gill of Roaring Kitty returned to social media on X (formerly Twitter) and in the following days GameStop's shares increased significantly. Then, on Sunday, June 2, 2024, Roaring Kitty posted screenshots on Reddit showing an E-Trade account with a GameStop position valued at hundreds of millions of dollars. The next day GameStop shares rose 21%.

The article explains that the SEC defines market manipulation as someone artificially affecting the supply or demand of a security. "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. 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," Arthur told MarketWatch. 

However, should the SEC ultimately decide to pursue litigation, they could face the challenge of proving intention behind Roaring Kitty's memes and portfolio snapshots. Additionally, the SEC would need to establish that Keith Gill is in fact the person behind Roaring Kitty.

"There is 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," Arthur said. 

"It would certainly be a unique case with precedent-setting issues and plenty of headlines. And that alone might be enough to spark the interest of the SEC," Arthur concluded. 

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