GameStop Saga: Roaring Kitty Sued, RobinHood Grilled At Hearing

Gamestop bull, Roaring Kitty, is facing a lawsuit over alleged securities violations. Meanwhile, RobinHood is facing questions by lawmakers.

The GameStop saga is continuing. Last week, we checked in to see what developments were unfolding. During that checkup, we noted that various players in the GameStop trading story were being sent subpoena’s. The suggestion at the time is that lawmakers were demanding answers as to what was happening in all of this. It was difficult to see where lawmakers were going with those, so it was difficult to really tell where this story would head next.

Now, we are learning that Roaring Kitty, a key player on the Reddit side of this story, is facing a possible class action lawsuit. From The Globe and Mail:

The social media persona “Roaring Kitty” at the center of last month’s frenzied rally in shares of GameStop Corp violated securities laws and caused “huge losses” for investors, according to a class action lawsuit filed in federal court in Massachusetts.

Keith Gill, or Roaring Kitty on YouTube and DeepF***ingValue on Reddit forums, allegedly hid his sophisticated financial training and duped retail traders into buying inflated stocks, according to the complaint filed on Tuesday.

The lawsuit comes before Gill is scheduled to testify on Thursday in Congress about the so-called “Reddit rally.” According to the lawsuit, Gill “incited” the rally, which was hailed as a victory of the little guys against Wall Street hedge funds that bet against GameStop and other struggling businesses.

The lawsuit by Christian Iovin, a Washington state resident who purchased GameStop stock options, also names as defendants Massachusetts Mutual Life Insurance Co and its subsidiary MML Investors Services LLC, which employed Gill until Jan. 28.

The details of this are extremely puzzling. One of the key aspects of this is that those who were encouraging people to buy into the GameStop stock were explicitly told to not invest any money they were not prepared to lose. Further, everyone was clearly told that this is not a money making venture in the first place. So, the notion that he caused “huge losses” for investors is absolutely bizarre unless he was doing things substantially different from every other noteworthy Redditor involved. Further, if someone is going onto a random forum and making comments, what obligation does that user have to fully disclose their background in the first place?

Judging by the details in this report, it’s really hard to see how a lawsuit like this could even get legs in the first place.

Meanwhile, Robinhood is facing questions by lawmakers. One of the biggest concerns is that the app blocked people from buying GameStop stock. The company behind the app has been accused of colluding with the billionaire hedge fund CEO’s who were trying to short the GameStop stock before Reddit got involved. The company even faced accusations that they were forcibly selling users GameStop stocks. At any rate, people have been saying that Robinhood was effectively manipulating the stock market using questionable tactics. So, understandably, questions are being raised here.

According to the CBC, the company is facing questions for their actions:

Some of the toughest questions and harshest criticism was directed at Vlad Tenev, CEO of Robinhood, which operates an online trading platform that is popular with individual investors. Tenev defended Robinhood against allegations that trading restrictions it put in place at the height of the GameStop frenzy disadvantaged those smaller investors in favour of bigger institutional clients.

The head of the financial services committee, Democratic Rep. Maxine Waters, brusquely grilled Tenev on those restrictions. She also asked Tenev about Robinhood’s close relationship with Citadel Securities, which she maintains poses a conflict of interest.

At issue is the common practice in the securities markets of payment for order flow, in which Wall Street trading firms such as Citadel Securities pay companies like Robinhood to send them their customers’ orders for execution. In addition, platforms like Robinhood give the trading firms data on stocks its users are buying and selling.

Both Tenev and Ken Griffin, the CEO of Citadel, denied that Citadel had any role in Robinhood’s decision to restrict trading in GameStop and some other volatile stocks.

Tenev said Robinhood imposed the trading restrictions solely to meet capital requirements set by regulators. Still, he apologized to Robinhood customers.

“Despite the unprecedented market conditions in January, at the end of the day, what happened is unacceptable to us. To our customers, I apologize, and please know we are doing everything we can to make sure this can’t happen again.”

The panel’s senior Republican, Rep. Patrick McHenry, put forward conservatives’ view that the GameStop episode shouldn’t be used by Washington to bring new regulations on the markets.

The article also notes that Roaring Kitty was also testifying today:

Gill told lawmakers that he reaped a profit on his investment because he did his homework, and not because he touted the stock.

“The idea that I used social media to promote GameStop stock to unwitting investors and influence the market is preposterous,” Gill said.

“My posts did not cause the movement of billions of dollars into GameStop shares. It is tragic that some people lost money and my heart goes out to them.”

Other players in the saga have also been testifying in Congress as well.

Meanwhile, it seems that the push to drive up GameStop stocks is still not over. Today, we are seeing it hover around 40 per share. This is close to double the pre-surge price. It is also about 10 times higher than this time last year as well. While the large spike does minimize the look of the value, the value is still up quite a bit and has been more or less bobbing around that value for some time now.

Drew Wilson on Twitter: @icecube85 and Facebook.

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