Keith Gill placed a big bet on GameStop, then single-handedly moved the stock higher by returning to social media. Was that market manipulation?
Lawyers say it is unlikely that the Securities and Exchange Commission could bring a case against Gill, the meme-stock influencer known as Roaring Kitty, based on the facts currently known about his trading.
For the SEC to sue Gill for manipulation, it would need evidence that he deceived the market in some fashion. But there is nothing clearly deceptive about Gill's tweeting of cryptic memes or revealing the size of his GameStop position. It has reached a whopping $260 million in shares and options contracts, according to a post on his Reddit account on Monday afternoon.
"What he's doing is exploiting a gap in the rules," said Daniel Hawke, a partner at the law firm Arnold & Porter Kaye Scholer and former head of the SEC's market-abuse unit. "He is using his celebrity and influence to draw people to buy the stock. The rules that exist do not permit the SEC to prosecute that conduct unless there is an element of deception."
The Wall Street Journal reported this week that Gill purchased a large number of GameStop call options before reappearing May 12 on social media. Such options provide the right to buy a stock at a specified price, and bullish investors can use them to place big leveraged bets.
Gill's trades and tweets prompted discussions at E*Trade, his brokerage platform, and its parent company, Morgan Stanley, over whether he should be booted off the platform over potentially manipulative trades, the Journal reported.
GameStop shares are up 81% since Gill returned to X, formerly known as Twitter, with an image of a man leaning forward in a chair. It was his first tweet after a nearly three-year hiatus. More tweets followed, featuring clips from movies and TV shows such as "Seinfeld," self-referential memes, images of cats, and the occasional GameStop logo layered onto the videos.
It is a testament to Gill's fame that such posts nonetheless ignited a rally. During the original meme-stock mania in January 2021, the headband-wearing Gill became an internet celebrity by posting videos on why he felt that GameStop -- a beaten-down, bricks-and-mortar retailer of videogames -- was undervalued. A movement of investors emerged in his wake, seeing Gill as its perceived champion against short-selling hedge-fund managers who bet against GameStop and other stocks. Gill later testified before Congress and became the hero of the 2023 Sony Pictures film " Dumb Money."
A lawyer who previously represented Gill declined to comment, and Gill didn't respond to messages.
Gill, a former registered stockbroker, is likely to have a solid understanding of regulations governing stock trading. He holds several securities-industry licenses, and a decade ago he was the chief compliance officer at Lucidia, a New Hampshire-based investment-advisory firm that is now defunct, regulatory filings show.
The SEC has a history of successfully prosecuting fraud cases in pump-and-dump schemes, in which the masterminds of the scheme promote a stock online -- often with false claims -- while quietly selling the stock as soon as it rallies. Gill's recent actions don't fall into that framework. None of his posts have been explicit endorsements of investing in GameStop or claims about the company's financial prospects. It is unclear whether Gill has sold his shares, or whether he is still amassing a giant GameStop stake.
Gill's actions don't appear to be insider trading, either, since he isn't a GameStop executive with special knowledge of the company's business.
Still, for some market observers, Gill's actions are blatantly abusive.
"This is obviously market manipulation. I can't believe we're even having this conversation," said Matt Stoller, director of research at the American Economic Liberties Project. "If market-manipulation law doesn't handle this, then what's it for?"
Other market veterans say Gill isn't doing anything wildly different from a Wall Street fund manager who holds a stock and discusses it on television. Steve Sosnick, chief strategist at Interactive Brokers, compared Gill's actions to an activist investor who quietly amasses a stake in a company, then reveals it publicly in hopes that the activist's entry into the stock will send it higher.
"He's hardly the first guy to talk his own book," Sosnick said.
There are a number of unanswered questions about Gill's trading. The short seller Andrew Left, who took out a bearish bet against GameStop in recent days, has speculated that Gill could be backed by other investors, citing the huge size of his position in GameStop shares.
Former SEC Chair Jay Clayton suggested in an interview with the Journal that Gill should publicly answer questions about his trading. Such questions include: Is he working with anyone else? How did Gill, an individual investor, finance his purchases of GameStop shares? Has he hedged any of his bets on GameStop? And what are his ultimate intentions?
"Absent answers to these questions," Clayton said, "I'm very uncomfortable for retail investors and for market integrity."