"The would-be plaintiff representing investors in the case, Christian Iovin of Washington state, sold $200,000 worth of call options on GameStop shares when the stock was below $100. The stock quickly eclipsed $400 a share, forcing him to buy the calls back at elevated prices."
He's being sued by someone who sold naked call options and got burned. This case is going nowhere.
I'd love to start suing people for every time I take a loss while trading.
> “Gill’s deceitful and manipulative conduct not only violated numerous industry regulations and rules, but also various securities laws by undermining the integrity of the market for GameStop shares,” the suit said. “He caused enormous losses not only to those who bought option contracts, but also to those who fell for Gill’s act and bought GameStop stock during the market frenzy at greatly inflated prices.”
As a regular person (with perhaps a higher-than-average exposure to various hazardous memes), this claim look bizarre. Taking out adjectives, a part of this reads:
"Gill's <adjectives> conduct not only violated <blah> regulations and rules, but also various securities laws by undermining the integrity of the market for GameStop shares"
How do I read this?
> Gill's conduct violated regulations and rules.
> Gill's conduct undermined the integrity of the market, and therefore violated various securities laws.
Was it really Gill's conduct that undermined the integrity of the market? It doesn't look like that to me, but IANAL.
As for his conduct violating regulations and rules, I'd really like to read these regulations and rules that govern how someone is expected to conduct themselves on r/WSB and youtube.
Here are the rules for registered investment advisors.[1]
This was a pump and dump. Those have been around since at least the 19th century. Older ones involved newspapers and newsletters. Newer ones involve social media. The SEC fines people for this regularly. This time, the suckers were people who hadn't seen this a few dozen times yet.
This wasn't a pump and dump though. Even if it never hit WSB the pump (squeeze of the short sellers) would have happened. The defining feature of a pump and dump is a socially engineered pump. Here the social aspect was more like "Look what is going to happen with or without us, we should ride it up. It is also obviously going to crash right after". People from WSB to Scion capital saw this coming, and got in.
I’m not a lawyer but Gill’s conduct was different from Reddit pumping accounts. He has been posting detailed information about his opinion on GME being undervalued for reasons largely different than a “gamma squeeze” or “short squeeze” for a year on YouTube. He just happens to be the most readily sue-able because of this long post history.
I don't think GME will end up being justly classified as a pump and dump scheme - for pump and dumps there needs to be both intent and ability and while there is surely both intent and ability in r/WSB I think an investigation will find that no one with the intent actually had the community presence to sway folks - that said, some rando in the community might end up taking the fall and being a scapegoat.
I think there is another side to the story though with many people who lost money buying the stock (selling options is different) based on his advice. Gill is held to a much higher standard than a normal person as he is a licensed security broker.
If you look at my comment history on HN, you will see at the time I was pointing out a lot of Redditors were engaging in a pump and dump scheme. Pump and dumps are illegal and regulated by the SEC. If Gill, a licensed security broker, is found to have been a part of this he could end up losing.
His comments about the company's value were about the fundamentals and, to a very limited extent, about a possible short squeeze: https://www.youtube.com/watch?v=alntJzg0Um4
And at most it seems he was giving his opinion about the company. He never said something like "everyone should buy GameStop because it's guaranteed to rise in value".
Gill has been advocating GME as an undervalued “value” play for over a year on his YouTube channel, his behavior is pretty different than the reddit pump accounts. But, he is the most visible and de-anonymized target for this kind of lawsuit.
Don't Pump and Dump schemes generally involve baselessly promoting a stock with the private intention of raising its price artificially? This whole sequence of events seemed like they were pretty transparent about what they were trying to accomplish based on publicly available information.
It is at best extremely unclear that there was a serious pump-and-dump scheme going on Reddit. To qualify as a pump-and-dump you have to deliberately inflate prices through false or misleading statements. That wasn’t really happening; everyone knew what was happening.
People off r/wsb may not have had as clear a picture (and I imagine many of the people who quadrupled the size of the sub in a week may not either), but it’s incredibly hard to blame Gill for other peoples reporting of him. By the end of things he wasn’t even really posting text, just portfolio shots.
I don't think this case will go anywhere but those are good points. It does sorta look like this was a "kind of" pump and dump market manipulation but I don't know if they will be able to pin it all on him. He's allowed to "give advice" but I don't know if misrepresenting himself as a novice trader would affect that. It'll be interesting to see how this plays out. I am split between thinking it will go nowhere and a judge "making an example" out of him.
Wasn't it blatantly obvious to pretty much everyone that the whole situation was just totally crazy and a horrible thing to get involved with on either side of the trade? I mean, this guy was on reddit with stupid memes, not in an office in a suit and tie being paid to give people advice.
> Gill is held to a much higher standard than a normal person as he is a licensed security broker.
> ...many people who lost money buying the stock (selling options is different) based on his advice.
Out of academic curiosity, how does this work?
Mr. Regular Joe wants to buy some stocks for an investment. He worries he doesn't know enough about the market, so he looks for advice from Mrs. Licensed Broker.
Mrs Licensed Broker says "Hello Mr. Joe, right now, GME is undervalued. It should be around $20, it is now at $4. By my estimates, it is a good buy. Look, I have put my own money into it because I think it's a good idea".
So, Mr. Regular Joe buys GME.
Mr. Regular Joe's wife buys GME.
Mr. Regular Joe's neighbor buys GME.
Mr. Regular Joe's grandmother's pet squirrel buys GME.
All of this buying has pushed the stock above $20.
Whose actions are Mrs Licensed Broker responsible for?
Or do we want to live in a society where every licensed broker who writes opinion pieces on seeking alpha and Wallstreet Journal suddenly realize that reddit could read their article, go crazy and expose them to legal trouble? In such a world, Mr. Regular Joe has to gamble with his money and pick stocks on random, because nobody who understands the market will share information with the Plebeian class.
Selling naked call options on a meme stock no less(assuming he sold them after the Reddit hype train started).
Also selling 200k worth meant he would have made it out like a bandit if the bet succeeded. I wonder what his net worth is if the broker allowed him to be leveraged so much?
Yes. The initial cost of the trade is a credit equal to the price per call multiplied by the number of calls you sold. This is the maximum you can make. Your risk on the other hand is theoretically unlimited, because the price of the underlying is theoretically uncapped.
That's when you sell a naked call. If you instead sell a covered call, you keep 100 * the number of calls sold in your account as collateral. Then you still only receive an exact credit at the time the position opens, but your risk is capped and defined as the price of the collateral at the time the position opened.
No you do have risk, it's just defined. The risk is equal to the collateral, which "covers" you in the event you're "called." This means the price of the underlying has reached the strike price of the option contract, and the counterparty has exercised (as they almost certainly would). Then you are obligated to provide 100 shares of the underlying * the number of calls sold to the counterparty. If that occurs, you lose money - the amount of money you can lose is your risk. In the case of selling covered calls it's capped to the value of your collateral, but it's still risk.
I wouldn't term it as "no risk", anything you do in the stock market carries risk, it's just a different risk. And it's not even a capped risk, if the stock goes up to infinity most of the gains will be captured by the person that bought your call, and you'll be only left with the shares.
>Aren't you just capping potential returns
Yes
>in exchange for immediate premium ?
That's not the main goal though, the main hope is to have them expire worthless so you can pocket the premium(or just going down in price over the option time period so you can flip it before expiry). So the best case is the stock going just under the strike price at the time of expiry. It wouldn't really matter that much if the premium wasn't paid out immediately but was paid at expiry to you by your broker.
A lot of people who think that buying puts is ,,too expensive''.
Nassim Taleb made money by understanding that out of money call options were underpriced, not overpriced how people think generally. People don't learn from the past.
Taleb made money in 2008 by buying options that were way out of the money and hoping for a crash. All other years, his fund lost money.
That strategy would have lost money over the last decade, because there wasn't a crash.
Whether that strategy is a net win over a business cycle isn't known. Taleb's funds never published their full results.
I guess you're probably talking about Universa, which Taleb is closely affiliated with? Taleb also ran his own shop Empirica for five years, 2000 - 2005. It beat the market on an absolute basis in year one (incidentally, during the dotcom crash) then had mostly negative results all other years.
I don't specialize in derivatives so I can't speak to how compelling his industry work is versus his writing. But my understanding is Taleb's strategies were explicitly designed to lose small amounts of money often and win huge amounts of money occasionally.
The idea is basically to go long vega and gamma waiting for an apparently rare event you believe will happen somewhat more frequently than expected. In the meantime you'll eat the theta and usually lose money, but ideally within certain risk parameters.
This paper talks about a strategy of buying OOTM options and the massive returns it would (occasionally) generate, and how to properly judge such a strategy.
And in addition considering everyone has read Taleb's books there has been accelerating interest in options which make the prices quite high and IV crush painful.
End result, even harder to win with OOTM options even if you are correct.
Taleb's strategy doesn't depend on a crash per se, but on unusual volatility in either direction. He accumulates a portfolio of puts or calls that misprice tail risk.
And yes it sometimes takes years to pay off, during which time the fund is paying management fees and options purchase prices. So it bleeds money over time, and then makes it back and more at random intervals.
That's by design. In fact it's a similar model to Venture Capital in that way.
Still, though. The fact that DeepFuckingValue just turns out to have been a licensed broker complicates the narrative quite a bit. Needless to say he can be expected to have known that the whole short trading theory of "Hold the Line" was bunk, and did nothing to disabuse the community of it.
I say it every time this comes up: this guy's criminal exposure is really significant. I find the idea that he Just Happened to stumble on a tulip bubble and had nothing to do with encouraging it just too much to believe. What we know of his public postings doesn't rise to criminal behavior, but then we don't know what sock puppets he might have been operating or what trades he was making privately.
And the incentives all point to this guy being guilty of securities fraud.
I posted an eerily similar comment to this on Reddit.
Yeah, the suit is BS, but the fact that he's a licensed broker really shifts the narrative a bit and makes you start to question things. It's no longer "Johnny Everyman finds Picasso painting at yard sale", it's now "Museum curator finds Picasso painting at yard sale".
I've been an active member of WSB for more than 5 years now and I've followed this story since the beginning. Based on his YouTube channel and some other things, I still think DFV is just a dude who stuck to his convictions and got insanely lucky, but I'm less certain of that than I was last week.
I don't think this suit will go anywhere, but I wouldn't be surprised theres a few twists left in this story.
Do you think that he is the only member of WSB that is a licensed broker or works in finance? I don't want to bet but I would say there is a good chance that people that a lot of people that used to post on WSB have either financial background or work in finance/trading.
Oh, there's literally no way he's the only one. Hell, Martin Shkreli used to be a mod of the sub (or at least a very active member).
There are plenty of people on WSB who very clearly know what they are talking about and trade for a living. I just think the narrative became that he was this random guy and finding out that he has a little more experience than people thought changes the story a little bit.
Like I said above, I really don't think he did anything wrong and I don't think he was intentionally being misleading. He didn't really even post many comments on Reddit. Half the time he just posted a screenshot of his account and that's it. I think people just interpreted it how they wanted.
> find the idea that he Just Happened to stumble on a tulip bubble and had nothing to do with encouraging it just too much to believe.
He was long gamestop and published his reasoning to the internet with explicit disclaimers before each video. When his bet started to pay off, people started to hop into the trade.
How is this materially different than any other firm or person that gives price targets or argues in favor of a position?
If he had sock puppets and unreported holdings, it is substantially different.
Also, he apparently misrepresented his qualifications in such a way that it makes the story that much more attractive to investors who could pump his holdings up.
Of course he wasn't "obligated". But the guy was (1) a legitimate expert on the details of how his trading worked and (2) spoke profusely and at length about all the other details of his investments. He wasn't silent. At all.
Yet he was silent as his investment conveniently went through the roof, driven by a huge misunderstanding propagated within the very community where he did almost all his profuse speaking.
And that doesn't seem suspicious to you? Look, I'm not the SEC. I can't subpoena his trade history or social media logs. But there is an SEC, and they can, and we have to believe they're looking into this.
Basically: sure, he might be totally innocent and just a lucky beneficiary of a crazy bubble. I'm just saying it's more likely that he was executing a pump and dump.
An alternative point of view is that he was a genuine (relatively) long-term believer in Gamestop and he steered clear of all conversations where nonsense was being spouted. I don't think he has any obligation to engage there and I suspect the courts will find the same.
Ah, I didn't realize Gill/"Roaring Kitty" was the same person as /u/DeepFuckingValue. He's more known as DFV, no? I guess the media doesn't want to print "fucking"? Thereby leaving out an important bit!
DFV never said a thing about short squeezing. Watch his content, don't trust the media. He bought the stock as a long term investment because he thought it's severely undervalued and it will rise with new leadership.
All the argument here tends to treat "/u/DeepFuckingValue" as the sole authority of what this guy did, and in context that seems outrageously naive.
Accounts all over WSB were pushing this stock like crazy, and this guys Just So Happens to have been a huge beneficiary, when he was absolutely expert enough to have understood the bubble (and importantly, how the bubble was driven by the WSB community misunderstanding short trading)?
Again, his expertise and the incentives just don't line up here. That's not proof, but it's pretty good justification for suspicion. Occam's favorite explanation has to be that this guy ran a pump and dump.
I think that's clear to OP. What OP is getting at is what else did/could keith be doing, how many other reddit accounts did they have, how many botnets, etc all possibly pumping this. That's for discovery and courts to decide. Maybe Keith is only DFV and none of that other stuff exists, or maybe DFV is just one of many keith's tactics to pump this thing.
Eh, no, please don't try to do this, that's the first step towards a really terrible world. We always assume innocence first, there needs to be proof to claim otherwise. There were many more people who invested at the same time and got big profit just like he did. DFV didn't even sell even a portion of his position anywhere near the top (he sold a small portion near one of the much lower highs, around $100 IIRC).
You could make this argument about literally anyone on Youtube or TV talking about stocks. Don't, please.
If you watched r/wallstreebets during this whole thing there was a lot of stuff going on; people saying things, people buying advertisements and billboards, people explicitly encouraging market manipulation... there was a lot going on which could easily be marked as securities fraud.
I agree with your "can't sue over loss of trading", but that's not to me the problem.
If he is a professional, Gill is in trouble. When I was working in capital markets, my contract stipulated that I had to disclose any trading activity to my employer. That's because, for example, I could be using insider information to conduct some trades privately, which is unethical and illegal. Or I could bet against the bank. Etc. I can't remember how many trainings I had regarding what I could do and not do in terms of trading privately.
Pretty sure that teasing masses on Reddit would have had me fired.
I wouldn’t be so sure. Yes it’s ridiculous to sue after doing something so stupid, however if it’s true that he’s a registered financial advisor, he may not get out of this Scott free.
He wasn't giving advice as a registered financial advisor though. I don't think anybody even knew he was one until WSJ published a piece on him. How does this hold up in courts?
Surprised they went for the courts instead of arbitration. Securities arbitration is notoriously biased towards the client. And even an allegation makes it onto the individual’s permanent regulatory record.
Don't you need some kind of established relationship to go for arbitration? I.e. sure, against your advisor or broker that makes sense, but against a random person you weren't a client of?
> Don't you need some kind of established relationship to go for arbitration?
Broadly speaking, I believe so. But FINRA arbitration is odd. I wouldn't be surprised if this individual could claim he thought DeepFuckingValue was giving him advice over Reddit to gain standing. From there, it's in the system.
If you have a license, you have responsibilities as defined by the regulations involved, regardless of whether the people you interact with know you have those responsibilities or not.
I wonder if this has been tested in court before. If I'm a licensed medical doctor and then I post under a pseudonym online on things medical-related (while not claiming to be a doctor or claiming to know anything about what I'm talking about), would it be possible to be sued for medical malpractice for that advice? That seems questionable.
I find it nauseating seeing the financial press, politicians and big time players claiming that their actions and ‘concern’ is based on not wanting retail investors to lose money as a stock peaks. Be honest, you don’t give a shit and even if this was your motivation, people have autonomy in the markets, although sometimes naive, they know the risks. Stop treating retail investors as children that need saving when in reality you got burned. wolves in sheep’s clothing comes to mind
The internet is full of vaguely conspiratorial takes involving 'elites' and I believe it has more to do with internet culture than the facts behind the 2008 financial crisis alone.
A theory recently occurred to me that I think is part of the explanation:
The rise of blogs and sites like Youtube gave independent journalists reach. Independents vastly outnumber people working in mainstream media. Yet mainstream media has more resources, more access to experts and higher production values.
So how can some rando with a webcam convince the public to watch them instead of watching 60 Minutes or reading the NYT? They can do it with the 'elites' narrative: 'Read my blog because the MSM is a tool of the elites and they only tell lies!'
And soon enough the only mainstream journalists the internet trusts are the ones who demagogue like Glen Greenwald or Tucker Carlson.
But as to the actual comment to which I am replying: it seems like the 'retail investors' who lost money on this WSB thing are suggestible marks. They enriched the kind of 'elite' they hate so much because they believed what they read on Reddit.
So it's probably good, in future, if someone treats them as children and protects them from themselves.
Tyler Cowen has a book that addresses this, but I believe it is even less complicated than you make it sound: Ultimately, to justify the incredible production value, major outlets need to appeal to a wide audience to make the economics work, whereas random dude on YouTube needs to appeal to a LOYAL audience. In an age when switching costs to consumers is something trivial, big behemoths will only survive if they can continue to modestly appeal to a large enough base, and tiny players can only exist if they can find a niche to firmly segment themselves in. What you end up with is small producers with incredibly fringe productions and big, established, heavy players who take on less and less risk so they can appeal to a very broad base.
I agree with all of that, but I think it augments my point. It's still the case that indies have more incentive to bash mainstream media than to praise it. An Alex Jones can't easily compete with a major news outlet to report, say, the Burmese coup, but he can shout 'The MSM is lying to you! Myanmar is a Globalist plot!' and amass a viewership of millions. Once you have enough indies riffing off one another, reinforcing the narrative, you wind up where we are today.
If the financial press really wanted to profit from feigning concern, they would have just parroted the populist narrative just like Elon Musk or Mark Cuban.
Most financial advisors, like this person, do not day trade and certainly don't mess with options. Aside from the risks involved, I think you'd have a hell of a hard time finding insurance for your firm if that was the case. No one wants to be stuck by themselves when they fat-finger an extra zero and lose someone else's $50k.
Why is he always referred to as 'Roaring Kitty' from youtube when he is undoubtedly better known as DeepFuckingValue from reddit? Because of the `F-Word`?
It will be interesting how congress will refer to him during the hearings, considering that reddit also has to appear and not youtube, so his alter ego DeepFuckingValue should be in focus?
I would imagine he would appear under his real name. It would be weird to hear his username in Congress, especially when there are no longer concerns about anonymity now that his name is publicized.
No way this is happening for real...he's suing /u/DeepFuckingValue because he took a loss trading?
Then what's next? Suing your state's DoT every time you get a flat on the road?
I once got a flat tire where INDOT was clearly at fault (or their contractors). I contacted them to warn them about the very dangerous situation[1], and they offered to pay my expenses, although I had road hazard coverage on the tires so it wasn’t necessary.
[1]: If anyone’s curious, I was compelled to drive over a mile on a tire rapidly losing air because of a pothole that should have been patched before they started highway construction that day. Both shoulders were blocked by barriers, the busy highway had been narrowed to two lanes, and the very deep/sharp pothole was just past an exit, so I could do nothing but speed (carefully) through a construction zone to get to the next exit before my tire went completely flat.
"In 2016, an Illinois man sued Starbucks for misrepresenting the amount of liquid contained in its cold drinks. ... The judge agreed with Starbucks' argument that a reasonable consumer who orders an iced drink expects the drink to contain both liquid and ice."
Selling calls on a meme stock in the middle of a short squeeze looks quite stupid to me. Especially naked calls, you're just asking to getting your face ripped off, and that's exactly what happened, and this guy is trying to shift the consequences of his dumb moves to a scapegoat.
There's really nothing redeeming about this lawsuit. Shame that Keith has become the focus of this show when really he did nothing wrong, it's just that he became the face of the squeeze and dumb people want to ascribe responsibility to him.
I guess it's a cautionary tale about coming out publicly, you become the target of very petty people. I hope the SEC does its job and goes after all the naked short selling and investigates all the failures to deliver that preceded the squeeze. But I'm cynical.
I doubt this lawsuit is going anywhere, but I wouldn't be surprised at all if this guy ends up in front of a judge at some point down the road. I really question his decision to come forward. Don't see what it gained him aside from the adulation of thousands of bots on r/WSB.
He didn't "come forward", other Reddit users made him their god (especially the 6 million new users of the sub), he was just posting his positions and commentary so others could learn. He became famous because he was in it long before anyone else and thus his gains got big.
Someone else said it, but he didn't "come forward." He's been posting about his GME position on WSB and his YouTube channel since 2019. You can literally go and watch the videos yourself. This is just an investor who enjoys sharing his due diligence with other investors, who ended up being absolutely right (and going viral because of it).
It is your position that the existing laws and regulations against certain kinds of pump-and-dump shouldn't exist, because instead everyone should just be smart enough to know that it happens pervasively?
He's being sued by someone who sold naked call options and got burned. This case is going nowhere.
I'd love to start suing people for every time I take a loss while trading.