Keith Gill, known by his online alias “Roaring Kitty,” is back in the spotlight with trading activities involving GameStop Corp. (GME). However, Gill is said to be exploiting a loophole in market regulations, which has raised concerns among market experts. However, legal experts expressed that the SEC cannot target Roaring Kitty due to the “gap in the rules.”
Legal Experts at Securities and Exchange Commission v. Roaring Kitty
Daniel Hook, a partner at Arnold & Porter Kaye Scholer and former head of the SEC’s Market Abuse Unit, commented. “What he is doing is exploiting a loophole in the rules,” he said. This statement highlights the complexities of Roaring Kitty’s actions, which, while controversial, appear to exploit regulatory gray areas rather than outright break the law.
Jill’s influence on individual investors is significant. He uses his online presence and celebrity status to draw attention to GameStop, encouraging increased trading activity. However, as Hook noted, “existing rules do not allow the SEC to prosecute this conduct unless there is an element of deception.”
Unlike traditional pump-and-dump schemes, Gill does not explicitly endorse investing in GameStop or make unsubstantiated claims about its financial health. Instead, his posts are often cryptic memes or updates of his trading position. This complicates the SEC’s ability to pursue the case against him.
Moreover, the ambiguity surrounding Roaring Kitty’s actions leaves a large gray area in market regulation. Furthermore, some market observers accused Gill of market manipulation. On the contrary, others claim that his behavior is not much different from that of Wall Street fund managers who openly discuss their holdings.
Steve Sosnick of Interactive Brokers noted that Jill’s actions resemble those of an activist investor. This raises the question of the fine line between market manipulation and advocacy. Matt Stoller of the American Economic Liberties Project took a tougher stance. “This is clearly market manipulation,” he said.
The wave of opinions highlights the controversy and complexity surrounding Jill’s situation. Now, the challenge for the SEC is to determine whether Roaring Kitty’s influence and business activity rise to the level of deception, a key element required for any potential prosecution.
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Controversy escalates as options data is revealed
Meanwhile, Roaring Kitty’s trading position in GameStop remains large. According to a post on his Reddit account, he owns $557 million in stocks and options. However, questions remain about his business activities, such as whether he was backed by other investors and how he financed his GameStop purchases.
The size of Roaring Kitty’s position and the scrutiny it attracts adds another layer of complexity to his trading strategy and its potential repercussions. The controversy intensified after popular investor Ross Gerber warned Gill against his short position in GameStop.
Furthermore, Gerber highlighted the risks that Gill faces, particularly with his $115.7 million stake in GameStop, including $65.7 million in call options that expire on June 21. In a post on X (formerly Twitter), Gerber said: “Katie would do well to be careful about exposing such risks.” Short range situation with a lot of enemies. “Where is he going to get all the money? He has to sell the options soon.”
Furthermore, SEC Chairman Gary Gensler addressed questions about Gill’s activities. He also emphasized that while disclosure is critical, it “doesn’t necessarily protect the bad actor.” This position reflects broader regulatory concerns about the need for transparency without providing a shield for potentially harmful market behaviour.
Experts also pointed to the challenges Roaring Kitty may face in cashing out his GameStop options. The number of open contracts in GameStop rose to 145,000 by the end of May, a significant increase from the 15,000 recorded earlier in the month. Hence, the size of Jill’s position and the increased interest in GameStop could complicate selling options or taking delivery of the underlying shares, which could reduce their value.
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