Roaring Kitty's GameStop Trades Exploit SEC's Regulatory Gaps, Experts Warn: 'This Is Obviously Market Manipulation'

Keith Gill, famously known as “Roaring Kitty,” is once again making headlines for his controversial trading activities involving GameStop Corp. GME.

What Happened: Experts raised alarm that Gill is leveraging a loophole in market regulations, The Wall Street Journal reported on Thursday.

Daniel Hawke, a partner at Arnold & Porter Kaye Scholer and former head of the SEC's market abuse unit, stated, "What he's doing is exploiting a gap in the rules."

"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." Unlike traditional pump-and-dump schemes, Gill's posts do not explicitly endorse investing in GameStop or make claims about the company's financial health.

It remains unclear whether Gill has sold his shares or continues to accumulate a significant stake in GameStop. His actions do not constitute insider trading, as he lacks special knowledge of GameStop's business operations. However, some market observers view his actions as blatant market manipulation.

Matt Stoller of the American Economic Liberties Project remarked, "This is obviously market manipulation."

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Others argue that Gill's conduct is not vastly different from that of Wall Street fund managers who discuss their holdings publicly. Steve Sosnick of Interactive Brokers likened Gill's actions to those of an activist investor. Questions about Gill's trading persist, including whether he is backed by other investors and how he financed his GameStop purchases.

Why It Matters: The controversy surrounding Gill’s trading activities has intensified, especially after renowned investor Ross Gerber cautioned Gill about his short-term position in GameStop. Gerber took to X, formerly Twitter, to warn Gill about his $115.7 million stake in GameStop, including $65.7 million in call options expiring on June 21. Gerber’s post highlighted the risks Gill faces, stating, “Kitty better be careful exposing such a short-term position with so many enemies. Where would he get all the money… he’s got to sell the options soon.”

Adding to the scrutiny, SEC Chair Gary Gensler addressed questions about Gill’s activities during an interview. Gensler emphasized that while disclosure is crucial, it “doesn’t necessarily protect a bad actor.”

Moreover, experts have pointed out the challenges Gill might face in cashing out his GameStop options. By the end of May, the number of open contracts in GameStop had surged to 145,000, a significant increase from the 15,000 recorded earlier in the month. The size of Gill’s position and the heightened attention on GameStop could complicate selling the options or taking delivery of the underlying shares, potentially reducing their value.

Read Next: Ross Gerber Cautions ‘Roaring Kitty’ Over Short-Term Gamestop Position As He Has Many Enemies: ‘He’s Got To Sell The Options Soon’

Image via Shutterstock

This story was generated using Benzinga Neuro and edited by Pooja Rajkumari

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