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Roaring Kitty’s $262 Million Stirs Skeptics in the Meme Stock Era

June 16, 2024
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As the fervor around GameStop Corp. reignited among meme-stock enthusiasts, followers of trading influencer Keith Gill eagerly awaited a significant milestone: the moment their idol, also known as "Roaring Kitty" and "Deep F---ing Value," would ascend to billionaire status.

This prospect seemed within reach. Over a fortnight, Gill shared snapshots of his substantial holdings in GameStop and its call options, with his portfolio peaking at over $550 million on June 6. Despite acquiring more stock, the value of his investments has declined alongside the company's share price.

With the stock stabilizing since the onset of its latest frenzy, a new wave of anxiety is emerging among both Wall Street professionals and retail investors.

The original GameStop rally in 2021 fundamentally challenged the practice of short-selling, revealing the risks of betting against struggling companies when facing the fervor of Reddit users. Now, the critical issue revolves around market manipulation.

Is posting a meme that could instantly yield profits an affront to the principles of free and fair markets? Has the narrative of David versus Goliath in the realm of meme stocks shifted? What if Roaring Kitty has become the Goliath? How did he amass a stake surpassing that of Charles Schwab Corp.?

“The initial meme stock craze was a battle between ‘us’ and ‘them,’ where ‘them’ were those shorting millennials’ beloved companies like GameStop,” explained Steve Sosnick, chief strategist at Interactive Brokers. “But now, the lines are blurred as to who the adversary really is.”

Gill did not respond to a request for comment.

Diminishing Appeal

Gill, the populist leader of a short squeeze that disrupted Wall Street during the 2021 meme-stock surge, is losing some of his grassroots appeal. Trading firms and even some former fans view him with growing suspicion, as Reddit users question whether his return resembles a classic pump-and-dump scheme.

By Thursday, snapshots of Gill’s brokerage account indicated he had liquidated an earlier position of 120,000 call options and increased his GameStop holdings to approximately 9 million shares, valued at over $262 million. (His final 2021 post revealed he held 200,000 shares worth more than $30 million; GameStop executed a four-for-one stock split in July 2022.)

As Gill’s maneuvers propelled the stock price upwards again, GameStop capitalized on the volatility, selling more than $2 billion worth of shares.

Overall, investors who bought shares in the past month and held them faced an equal chance of losing or gaining money. One notable change is that hedge funds and other savvy investors, having adapted from three years ago, are likely to profit—potentially at the expense of Gill’s retail-trading supporters.

“Some quantitative managers have models to detect price trends and quickly exit the stock if they anticipate significant downside volatility,” said Don Steinbrugge, CEO of Agecroft Partners, which assists hedge funds in raising capital. “Eventually, retail investors will wise up to the considerable risks involved.”

Concerns Over Manipulation

This episode has intensified discussions about what constitutes market manipulation. The Wall Street Journal reported that Morgan Stanley’s brokerage E*Trade was considering banning Gill from its platform over such concerns, having previously barred other high-profile figures like Dave Portnoy, the Barstool Sports founder known for his trading antics.

An E*Trade spokesperson declined to comment.

Gill’s case is unique in that market manipulation typically involves driving up prices to benefit from the movement, noted Craig Marcus, a partner and co-chair of the capital markets group at Ropes & Gray. If Gill’s snapshots are genuine, it does not seem to fit this pattern, Marcus explained.

“You might disagree with his thesis on the stock’s value, but if he’s simply acting on his thesis without engaging in manipulative tactics to profit, it’s hard to prove malicious intent,” Marcus said in an interview.

Gill faced similar accusations three years ago when he first gained prominence. In 2021, a lawsuit alleged he was manipulating markets with his significant influence on specific stocks, although it was later dismissed.

Shifting Perceptions

“Three years ago, this was seen as amusing,” said Peter Atwater, an adjunct economics professor at William & Mary. “Now, it’s more troubling than entertaining, suggesting that this behavior may not be tolerated much longer.”

When Gill announced a much-anticipated return to YouTube on June 6 without disclosing the topic, GameStop’s stock soared nearly 50%, adding $16 billion to its market value within hours.

During the livestream, which attracted hundreds of thousands of viewers, Gill spoke for about an hour amidst the volatile share price movements of GameStop. He appeared aware of the increased scrutiny from fans, regulators, and trading experts.

“Do I have to be careful about what I say here?” he mused.

Cathy Hills
Associate Editor
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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