Keith Gill, widely known as "Roaring Kitty" for his pivotal role in the 2021 GameStop (GME) short squeeze, is now facing securities fraud claims in a new class-action lawsuit. The lawsuit, which stems from his recent social media activity, alleges that Gill orchestrated a "pump and dump" scheme. However, legal experts suggest the case is likely "doomed" to fail.

The lawsuit, filed on June 28 in the Eastern District of New York, accuses Gill of failing to adequately disclose his GameStop option trades, which allegedly misled investors and caused significant financial losses. The plaintiff, Martin Radev, claims he was injured by Gill's actions after purchasing 25 GME shares and three call options beginning in mid-May. Represented by the law firm Pomerantz, Radev asserts that Gill's social media posts caused GME's stock price to surge and then plummet, inflicting losses on investors.

Gill, who had been on a two-year social media hiatus, reemerged on May 13 with a series of cryptic memes posted to his X (formerly Twitter) account. These posts sparked a dramatic 180% increase in GME's stock price, which soared from $17.46 to $48.75 by the close of trading on May 14. On June 2, Gill disclosed a substantial position in GameStop, including 5 million shares and 120,000 call options set to expire on June 21, 2024, causing another surge in GME's stock price.

By June 13, Gill revealed that he had exercised all 120,000 options, realizing millions in gains and using these profits to accumulate more GameStop shares. The lawsuit alleges that Gill did not sufficiently disclose his intent to sell these options in advance, misleading his followers and causing financial harm to investors.

Despite the allegations, former federal prosecutor Eric Rosen believes the lawsuit is unlikely to succeed. In a June 30 blog post, Rosen, now the founding partner at Dynamis LLP, stated that the class-action complaint is "doomed from its inception." He argues that Gill's lack of advance disclosure about his trades is not a strong basis for the lawsuit, as no reasonable investor would expect Gill to hold onto his options until their exact expiration date.

Rosen further explains that proving fraud in this case would be challenging because it would require demonstrating that Gill intentionally misled investors. He notes that a series of memes posted by someone named "Roaring Kitty" on social media are not inherently provable or disprovable claims. Therefore, it would be difficult for the plaintiff to establish that Gill's posts constituted securities fraud.

Rosen also points out that the plaintiff's attempt to profit from the price impact of Gill's social media activity, rather than the actual content of the posts, weakens the case. "It is unreasonable to purchase securities simply because an individual named Roaring Kitty posted innocuous tweets on social media," he writes.

The lawsuit highlights the complexities of regulating social media activity in the financial markets. As the case against Gill unfolds, it underscores the challenges of proving securities fraud based on social media posts, particularly when such posts are not explicit financial advice or statements. While the allegations against Gill have drawn significant attention, legal experts like Rosen suggest that the case is built on shaky ground and is unlikely to prevail in court.