On May 12, a tweet of a cartoonish videogamer from Keith Gill's X account, "RoaringKitty," brought GameStop's stock back to life and sent it rallying by more than 180% the following day.
Then, on June 2, more bullish sentiment pumped GameStop as the Reddit account "Deepf*ckingValue," believed to be Gill, posted a screenshot of positions in the stock. It showed 5 million shares worth almost $116 million, 120,000 options contracts worth nearly $66 million, and a cash position of $29 million for a total of $211 million. On June 3, he added another post to show gains of almost 32% on the stocks and 76% on the options, bringing the purported total value of the account to $289 million.
Steve Sosnick, the chief strategist at Interactive Brokers, says the sizable position means that whoever holds the Reddit account almost certainly wants to see that stock rise higher. Gill's massive position and his continuous promotion of the stock have raised questions over whether he will fall into the Securities and Exchange Commission's crosshairs for market manipulation.
On Wednesday, SEC chair Gary Gensler told CNBC that the commission is a cop on the beat, alluding to the possibility that it's investigating the matter but won't disclose anything until it can make its case in court. Gensler warned against doing anything that could be manipulative or misleading.
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"Disclosure doesn't necessarily protect a bad actor if they're manipulating the market," he said. "You can't just simply disclose that away, particularly if you're misleading the market."
Adam Gana, a trial lawyer specializing in securities law, said Gill is within his rights to post about GameStop.
In 2021, Gill went on a public rampage by posting YouTube videos boasting about how great GameStop was as a company and stock. His content became a driver of retail investor interest that began to pile into GME, creating further social media hype and sending the stock to peaks of 2,000%.
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The consequence was an unexpected hit to some on Wall Street: hedge funds betting against the stock due to weak fundamentals found themselves in a short squeeze that would cost them billions. Melvin Capital Management lost over half of its assets and shuttered its doors. Citron Capital recorded a 100% loss.
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Despite all that, Gill isn't making recommendations or telling anyone else to do anything. He's just posting his position, Gana said. Furthermore, Gill doesn't have inside knowledge about GameStop. He is not an employee of the company, and he cannot use inside information to affect the stock price. So, if he can't talk about GME and his positions, then who can, Gana added.
While you could argue that Gill is aware of the impact he has, Sosnick contends that it's no different from any fund manager who shows up on CNBC and talks about what stocks they're buying. Wall Street investors do this all the time. Short sellers like Hindenburg Research put out reports regularly on stocks they're shorting that negatively impact the companies they target and their stocks, Sosnick added.
"Manipulation tends to involve materially false statements, things of that nature, things that are deliberately deceptive," Sosnick said. "It's not clear that that's what's happening here. He hadn't actually said anything, literally."
Gana noted that you start to get into the gray areas when statements are made directly telling people to go and buy the stock. However, you are allowed to say what you think about a company and then share the actions you're taking.
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But whether Gill is safe is a different question.
"He's within his legal rights," Gana said. "Whether he's safe, well, Congress hauled him up to testify because they were unhappy with the way in which he was acting. Right. So, is he safe? I don't know. I can't say."
Gana added that if Congress hates what Gill is doing, they can make his life miserable. So, politically, there can be consequences to his actions, even if it's legal.
Despite Gensler's cautionary tone, Gana says there is nothing illegal here unless the laws are changed. Still, he advises retail investors to be cautious about falling for the hype and trying to chase a meme stock.
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"I don't give investment advice, but I've seen a lot of people be burned by the attempt to get in on these meme stocks," Gana said as he recounted the numerous calls he received from people who found themselves stuck in a position they couldn't exit because the brokerage halted trading.
Gill may face consequences from the private sector, however, as E-Trade is reportedly mulling over banning him from its platform, which would be within the brokerage's right, Gana added.
