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Business

YouTube, Reddit User ‘Roaring Kitty’ Gets Sued for Securities Fraud Over GameStop Short Squeeze

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Photo: Michael M. Santiago (Getty Images)

Keith Gill, also known as “Roaring Kitty” on Twitter/YouTube and “DeepFuckingValue” on Reddit, is facing a proposed class action lawsuit for his role in the massive GameStop short squeeze orchestrated by Reddit’s r/WallStreetBets board, Bloomberg reported on Wednesday.

According to Bloomberg, the suit was filed by Hagens Berman Sobol Shapiro, a securities class action firm, on behalf of Washington state’s Christian Iovin, who sold $200,000 in call options on GameStop stock when it was worth below $100 a share. This proved to be a very bad bet, as users on r/WallStreetBet launched an organized effort to pump GameStop and other poorly-performing stocks, like AMC and BlackBerry, with nostalgia value that ultimately was quite successful. As major Wall Street sharks quickly got clued into and joined the Reddit-driven effort, shares in GameStop spiked to $483, spelling disaster for traders short-selling the company’s stock. Iovin was forced to buy back his calls at inflated rates as a result, according to the suit. GameStop now stands at $46 per share, still significantly higher at the beginning of 2021, when it was trading in the $19 range.

Gill was one of the leading proponents of the rush on GameStop on his social media accounts, and according to CNBC, posted to Reddit that he made at least $7.8 million on the company’s stock. The suit accuses him of not being some layman, but a licensed securities broker that deliberately manipulated the price of the company’s stock to get rich quick.

“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 class action proposal said, according to Bloomberg. “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.”

According to the New York Times, the class action proposal cites Gill’s multiple broker licenses and also names MassMutual’s brokerage arm—where Gill worked until a few weeks ago, and which the plaintiffs claim failed to properly rein in his market activities. Times also noted that securities regulators in the state of Massachusetts are looking into whether his posts potentially violated the law or industry rules. (The Securities and Exchange Commission has issued vague threats to everyone involved involved in the speculative frenzy, including stock-trading app Robinhood, but hasn’t actually carried them out.)

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Gill is strenuously fighting claims he was trying to manipulate the market to his own benefit. The short squeeze was only possible because hedge funds like Melvin Capital had taken out greedily large short positions on GameStop, presenting an opportunity for investors to make big money if the stock rose while the hedge funds lost their shirts. The House Financial Services Committee is holding a hearing on Thursday over the whole r/WallStreetBets fiasco, with Gill scheduled to testify. Others scheduled to speak include Robinhood co-CEO Vlad Tenev, Reddit CEO and co-founder Steve Huffman, and Melvin Capital CEO Gabriel Plotkin.

In his prepared remarks to the House, Gill claimed that his position as Director of Financial Wellness Education at MassMutual had been totally unconnected to his side gig as a stock market commentator and that he had genuinely believed GameStop had “the potential to reinvent itself as the ultimate destination for gamers within the thriving $200 billion gaming industry.” Gill added that as of just a few months ago in December 2020, his YouTube and Twitter accounts had just a few hundred followers each and he did not believe he had the capability to sway markets.

“The idea that I used social media to promote GameStop stock to unwitting investors is preposterous,” Gill wrote. “I was abundantly clear that my channel was for educational purposes only, and that my aggressive style of investing was unlikely to be suitable for most folks checking out the channel. Whether other individual investors bought the stock was irrelevant to my thesis—my focus was on the fundamentals of the business.”

Gill added that “others will have to explain” exactly what happened with GameStop.

“Here’s the thing: I’ve had a bit of experience and even I barely understand these matters,” he wrote. “It’s alarming how little we know about the inner-workings of the market, and I am thankful that this Committee is examining what happened.”

Gill’s attorney, William Taylor, declined to comment to the Times, while MassMutual told the paper it is looking into the matter.

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Technology

Sony Sued For Not Honoring Warranty Agreements on Defective PS5 Controllers

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Photo: CHARLY TRIBALLEAU / Contributor (Getty Images)

Sony is facing a class action lawsuit over its reported failure to honor warranty agreements on PlayStation 5 controllers with obvious “drift” defects.

In a complaint filed in the Southern District of New York on February 12, the Japanese conglomerate is accused of violating consumer fraud statutes and breaching warranty agreements related to the PS5 DualSense wireless controllers, which the suit alleges have an obvious defect that allows the characters to drift across the screen even when a user isn’t moving the controller’s joystick.

Lmarc Turner, the lead plaintiff listed in the complaint, claims that he immediately experienced a drift issue with the controller after he took his PS5 home in early February. But after contacting customer services, Turner was reportedly left with some lame advice about troubleshooting the defective controller and not much else in the way of help.

Eventually, “[g]iven that his experience with contacting Sony the first time did not satisfactorily address the drift issue,” Turner bought another DualSense controller for $69.99 a few days later, but “Had [he] been aware of the Drift Defect prior to purchasing his PS5, he otherwise would not have purchased the PS5, or would have paid substantially less for it,” the complaint says.

The suit also claims that Sony had to have known how widespread the drift issue was, particularly given “online consumer complaints, complaints made by consumers directly to it, and through its own pre-release testing.”

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“This defect significantly interferes with gameplay and thus compromises the DualSense Controller’s core functionality,” the complaint says.

The DualSense controllers were released alongside the PS5 console in November to much fanfare after selling out via preorder pretty much everywhere.

The lawsuit calls for Sony to launch a recall or free replacement program in order to replace the faulty controllers for all class members, and also calls for damage payments to be paid out to consumers in order to recompense them for buying new controllers or any other out of pocket expenses to fix the alleged defect.

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Business

Robinhood sued by family of Alex Kearns, 20-year-old trader who killed himself

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Robinhood was sued Monday for wrongful death by the family of Alex Kearns, a 20-year-old customer who took his life last summer after believing he had racked up big losses on the millennial-favored stock trading app.

“This case centers on Robinhood’s aggressive tactics and strategy to lure inexperienced and unsophisticated investors, including Alex, to take big risks with the lure of tantalizing profits,” said the complaint filed by his parents Dan and Dorothy Kearns, and his sister Sydney Kearns in a California state court in Santa Clara. The family is based in Naperville, Illinois.

Robinhood’s “reckless conduct directly and proximately caused the death of one of its victims,” the complaint said. The lawsuit is also accusing the brokerage of negligent infliction of emotional distress and unfair business practices.

Alex Kearns, a then-sophomore at the University of Nebraska at Lincoln, committed suicide in June after thinking he had a negative $730,165 cash balance on Robinhood.

The complaint alleges that Kearns misunderstood the Robinhood financial statement and was protecting his family from the financial obligation.

The suit says that Kearns made three attempts to contact Robinhood customer service regarding the massive underwater balance.

However, his messages were met with automated replies, according to the complaint.

In a note to his family that CNBC has seen, Kearns accused Robinhood of allowing him to pile on too much risk. He claimed the puts he bought and the shares sold “should have cancelled out,” according to the note.

Puts are options that give the owner the right to sell a security at a specified price.

The trader said he had “no clue” what he was doing, according to the note.

“How was a 20 year old with no income able to get assigned almost a million dollars worth of leverage?” read the note Kearns wrote to his family. “There was no intention to be assigned this much and take this much risk, and I only thought that I was risking the money that I actually owned.”

A Robinhood spokesperson told CNBC, “We were devastated by Alex Kearns’ death. Since June, we’ve made improvements to our options offering.”

Robinhood has become a popular entry point to the stock market for first-time investors. It has grown from 1 million users in 2016 to more than 13 million last spring. Amid the Reddit investor-fueled GameStop drama, traffic analysis site SimilarWeb estimates 3 million more users downloaded Robinhood in January alone.

Robinhood, which is run by CEO Vlad Tenev, has come under scrutiny for its “gamification” of investing and alleged predatory marketing practices.

Robinhood is also facing class-action lawsuits from clients after the app’s decision to restrict trading in certain securities during the recent GameStop controversy. The brokerage firm, which has plans to go public in 2021, has repeatedly said that the majority of its users are long-term investors.

Robinhood, one of the biggest beneficiaries of the retail trading boom in 2020, has also come under scrutiny for the access it gives its clients without proper investing education. Last year, Massachusetts regulators filed a complaint against Robinhood, accusing the trading app of predatory marketing on inexperienced investors.

The Securities and Exchange Commission charged the brokerage in December with misleading customers about how the stock-trading app makes money and failing to deliver the promised best execution of trades.

The Kearns’ family complaint says, “Not only did Robinhood permit Alex to open the account, but when Alex was a freshman in college later that year, it permitted him to trade options.”

“Worse, Robinhood provided almost no investment guidance, and its customer ‘service’ was virtually non-existent, consisting of automated e-mail replies devoid of any human contact or interaction,” the family alleged in the suit.

Here’s Robinhood’s full statement regarding the lawsuit.

“We were devastated by Alex Kearns’ death. Since June, we’ve made improvements to our options offering. These include adding the ability to exercise contracts in the app, guidance to help customers through early assignment, updates to how we display buying power, more educational materials on options, and new financial criteria and revised experience requirements for new customers seeking to trade Level 3 options. In early December, we also added live voice support for customers with an open options position or recent expiration, and plan to expand to other use cases. We also changed our protocol to escalate customers who email us for help with exercise and early assignment. We remain committed to making Robinhood a place to learn and invest responsibly.”

— with reporting from CNBC’s Dan Mangan and Kate Rooney.

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Entertainment

Taylor Swift sued by Utah theme park over ‘Evermore’ album title

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The park is seeking millions of dollars in damages, according to court documents filed on Tuesday in the US District Court of Utah.

Evermore Park is about a half-hour south of Salt Lake City and is based around the theme of a fantasy European village.

The lawsuit claims that the park and CEO Ken Bretschneider have invested approximately $37,000,000 in the creation and promotion of Evermore Park and the Evermore trademark.

It said that the park’s business and reputation have been hurt because of the album.

A spokesperson for Swift dismissed the claims in a statement and said the park was having financial difficulty before her album was released.

“The fact is, this frivolous claim is coming from Ken Bretschneider, founder and CEO of an experience park and according to Utah Business, ‘As of June 2020, at least five lawsuits have been filed against Bretschneider and the Evermore group by major construction companies like Sunroc, AGC Drywall and Construction, Geneva Rock, Mountain Point Landscaping, EME Mechanical, Kreativ Woodworks, and NFH Distributing (Beehive Brick and Stone).’ The companies claim ‘they are owed between $28,000 and $400,000.’ Utah Business says, ‘he owes millions of dollars in construction, mechanic, and landscaping fees to workers across the valley who have yet to be paid’ … with ‘a collection of more than 20 construction liens on the Evermore property.’ The true intent of this lawsuit should be obvious.”

The document says traffic to the Evermore Park website spiked after the album was released and that park visitors and fans on social media asked staff members if the park had collaborated with Swift.

The album also drove Evermore Park off the first page of Google search results, according to the document.

The lawsuit said that it has trademarks for the Evermore name on clothing, theme parks and entertainment services dating back to 2015.

It says that some of the merchandise sold on Swift’s website infringes on those trademarks and it is seeking $2 million for each of the types of goods and services Swift sold and other damages.

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Technology

Activision Blizzard sued over female Call of Duty: Modern Warfare character, Mara

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In 2019, Call of Duty: Modern Warfare publisher Activision Blizzard introduced a new character to its game: an operator named Mara. A writer and photographer is now alleging that the company intentionally modeled Mara after his own character, Cade Janus, from a short story called November Renaissance.

Plaintiff Clayton Haugen filed a copyright infringement lawsuit in a Texas court on Tuesday, according to court documents first published by Torrent Freak. He alleged that Activision Blizzard and developer Infinity Ward willfully intended to model Mara after Cade Janus — including hiring the same model, Alex Zedra, to reproduce the photoshoot and scan her likeness for use in the game. Haugen said developer posted his Cade Janus photographs on the photography studio wall during the Call of Duty: Modern Warfare shoot.

Haugen said he originally hired Zedra in 2017 to model as Cade Janus before he pitched the story to movie studios. He later published photos on his website, in a calendar, and on Instagram.

“In addition to hiring the same talent, they also hired the same makeup professional who had prepared the talent for Haugen’s Cade Janus Photographs,” lawyers wrote in the complaint. “They instructed the makeup professional to prepare the talent exactly as she had done for Haugen’s Cade Janus Photographs. They instructed her to style the talent’s hair exactly as she had done for Haugen’s Cade Janus Photographs, even using the same hair piece extension.”

Haugen alleges that Activision Blizzard and Infinity Ward required the model and makeup artist to sign non-disclosure agreements to “conceal their planned infringement.”

Image: Clayton Haugen/Activision Blizzard via complaint

The character Mara, alongside another character named Nikto, was added to Call of Duty: Modern Warfare in 2019. The character was available as part of the Call of Duty: Modern Warfare season one battle pass, which was available originally for 1,000 COD points, or around $10. A number of skins are available for the character for additional COD points. One, the Kawaii Cat skin, puts Mara in a cat-eared military helmet and unlocks a kitten charm, called “Nyan Nyan,” that dangles from her weapon. The bundle costs 2,400 COD points.

Neither Haugen nor Activision Blizzard has responded to Polygon’s request for comment.

You can read a full copy of the complaint below.



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