Roaring Kitty facing charges again! Will he be found guilty?

The plaintiff allegedly was injured by this “pump and dump,” purchasing 10 shares on May 13, 2024 (shortly after the May 12th tweet), and additional shares on June 4, 7 and 11 (a total of 25 shares). The plaintiff also purchased three options, two on May 13, 2024 (one sold on May 17) and one more on June 3, 2024. It is unclear the total “losses” alleged, but they are definitely small.

Social-media stock fraud allegations are on the rise, as regulators (DOJ and SEC) as well as private market participants attempt to claim that influencers are manipulating the market and causing an artificial market manipulation that hurts other retail investors.

First, the entire nature of securities fraud is that the fraudster either lies to you, misleads you by failing to disclose something, or omits to disclose something material that they are required to disclose. Here, Gill disclosed he had purchased options with a June 21, 2024 expiration date. Any reasonable person, let alone a reasonable investor, would have understood that Gill would be selling such a large position or exercising the options. No one would have let the option simply expire. In short, no one was tricked by a failure to disclose because a soon expiring option, by its very nature, is an “intent to sell” that security. Additionally, selling all the options shortly before they expired would likely have significantly hurt the stock (and thereby his twitter followers) as everyone would be expecting such a large “dump” of options on the market.

Second, the fraud allegations about Gill’s tweets/reddit posts will likely fail because they were not material to reasonable investors. It is clear that the plaintiff here sought to profit simply because Gill tweeted, not because of the content of the tweets. The plaintiff wanted to ride the waive and hopefully catch some meme stop momentum. Not a terrible strategy, and of course, the plaintiff didn’t make a large bet. But it was a bet, it was a gamble. The tweets of a meme stock icon were not something that a “reasonable investor” - one who reads earnings reports and analyzes company news - would take into account when making a decision on whether or not to purchase or sell a stock.

In short, even though the tweets obviously caused market movement, the test for materiality (and thus the reasonable investor standard) is objective, and it is unreasonable to purchase securities simply because an individual named Roaring Kitty posted innocuous tweets on social media.

Third, the tweets can hardly be described as false. Rather, posting a meme of a guy thinking about GME is not even a fact that can be proven or disproven. That is why the complaint focuses on this alleged failure to disclose an “intent to sell” rather than material falsehoods. But this puts the plaintiffs in a tough position - not only do they have to show that he failed to disclose an intent to sell (a tough put when the options are expiring shortly) - but they need to show that Roaring Kitty had a duty to disclose his intent to sell. And this is a high barrier. Generally, only financial advisors or fiduciaries have to disclose their positions or intent or things of that ilk. Roaring Kitty is neither. This too will be a hurdle that the plaintiffs will have to get over, and it will be difficult for them to do so. Notably, the complaint attempts to plead around this issue by claiming that Gill formerly worked at Mass Mutual and was a registered stockbroker, but that was years ago, and no one looking at the Tweets or on Reddit would have understood that he was acting in a professional capacity.