E-Trade May Ban 'Roaring Kitty' From Platform For Market Manipulation

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by Tyler Durden
Monday, Jun 03, 2024 - 11:40 PM

ETrade has had enough of the stock shenanigans of meme stock guru Keith Gill, also known as Roaring Kitty, who just happens to be a client of the online brokerage now owned by Morgan Stanley. Gill's non-stop promotion of GameStop on social media, coupled with giant trades, raised concerns about potential stock manipulation. This could force E*Trade to dump the retail trader, according to Wall Street Journal sources.

The scale of Gill's online influence, with millions of followers across various social media platforms, and his active promotion of the struggling video game retailer, has sparked concern among executives at the Morgan Stanley-owned trading platform. The firm is uncomfortable with Gill's presence on the trading platform, as it could attract unwanted attention, given his significant reach. 

That power created concerns he can pump up a stock for his own benefit. Their debate includes whether his actions amounted to manipulation and whether or not the firm is willing to risk drawing the attention of his meme army by removing him, according to people familiar with their internal discussions. -WSJ 

With the SEC unable to decide how to approach the bizarre pump (and dump), and whether to classify Gill's unique social media style as market manipulation, brokerages are now taking action into their own hands.

The sources confirmed what became public knowledge late on Sunday, namely that Gill bought a "large volume of GameStop options on E*Trade" before the first pump in May. 

Morgan Stanley employees, knowing that Gill is a customer, looked at his E*Trade account, according to people familiar with the matter. That sort of monitoring of clients is routine.

The employees saw he had purchased call options before the tweet, the people said. A call option gives a trader the right to buy the stock by a certain date at a stated price. At least some of those options expired that week, one of the people said. That meant Gill's trades likely generated profits thanks to the stock move his tweet generated.

Gill's trading continued, likely loading up with equity and short-term options ahead of Sunday's posting of his E*Trade account. He showed GME stock valued at $115.7 million, $65.7 million in GME short-term options, and $29 million in cash.

The post alone on Reddit triggered a stock frenzy in GME on Monday but quickly faded late into the session.

The people said the debate about Gill as a client at Morgan Stanley began three weeks ago, around the time of the first GME pump. They said no decision has been made yet. 

One of the biggest red flags around the first pump was GME's ability to slam the market with an offering of 45 million shares, allowing the company to raise $933 million, and sparking speculation that Gill was working alongside the company.

Meanwhile, sentiment around Gill is shifting: far from the "authentic" retail daytrading beacon that he became in early 2021 when his foray into the historic Gamestop short squeeze sparked the meme stock frenzy, his latest AUM which is clearly in the hundreds of millions "appearing more like manipulation without a solid thesis", has prompted speculation that far from working for himself, Gill may be in cahoots with one or more hedge funds...

... while established voices such as Clifford Asness slammed the "internet scammer" whose "coming back to pump and dump again is insane. It’s a cult. It’s an angry clueless cult (are there other kinds) angry about nonexistent scams and following ridiculous cult leaders."

But what may be the most damning twist in this latest episode of meme stonk mania is that the other OG of the daytrading movement, Dave Portnoy himself, asked if he is a big mark for Roaring Kitty.