GameStop shares fall further, leaving hardship for late investors

FILE - Pedestrians pass a GameStop store on 14th Street at Union Square, Thursday, Jan. 28, 2021, in the Manhattan borough of New York. AP Photo/John Minchillo, File

“IF HE’S STILL IN, I’M STILL IN,” was the constant refrain from followers of Roaring Kitty, the YouTube personality whose enthusiasm about buying stock in video-game retailer GameStop made him an icon in the social media frenzy that shocked Wall Street last week.

His hometown newspaper in Massachusetts dubbed him a “Brockton legend,” stirring dreams about how the former high school running champion might use his newfound riches to build the city an indoor track. Hollywood studios started sketching out movie proposals about the small-pocketed investors who banded together on social media to vault a troubled brick-and-mortar chain “to the moon” and punish hedge funds that were betting on its failure.

But what was a big victory for Roaring Kitty, a 34-year-old whose real name is Keith Gill, is turning into hardship for followers who jumped on the bandwagon and took risky bets on GameStop’s rollercoaster ride in the stock market.

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GameStop shares dropped 42 per cent on Thursday, continuing to plummet from a high of $483 a week ago to around $53. That’s still above the $17 they fetched at the start of the year.

The GameStop saga is also raising complications for Gill, who now faces an inquiry from a Massachusetts state regulator over potential conflicts of interest because of his work as a licensed securities broker and “financial wellness education director” for insurance company MassMutual. The regulator’s letter to MassMutual was first reported by the New York Times.

Click to play video: 'SEC reviewing GameStop stock frenzy amid market volatility: White House'
SEC reviewing GameStop stock frenzy amid market volatility: White House

The company told the Secretary of the Commonwealth’s office that it had previously denied a request from Gill to engage in outside business activity. His last day at the job was Jan. 28.

Gill is also on a list of people who might be called to Congress to testify, said Democratic Rep. Maxine Waters, who leads the House Committee on Financial Services. “I want him here,” she told the Cheddar financial news channel.

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Similarly, the heads of several regulatory agencies, including the Securities and Exchange Commission, the Federal Reserve Board and others, met with Treasury Secretary Janet Yellen to discuss “recent financial market volatility.”

Doubts emerged about GameStop and its online boosters this week as the stock plunged, spelling trouble for novice investors who got in too late, bought too high and found themselves caught up in an epic story of battling against the one per cent.

“I was a little late to the game,” said Will Binette, 21, of Albuquerque, New Mexico, who bought one share of GameStop last week when it was $380. “I don’t really care that I’m losing that much money. It’s about sending a message and redistributing the wealth.”

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Binette doesn’t fault Gill, calling him a smart investor who made a “phenomenal profit.” Instead, Binette said, it was the broader community of investors on the Reddit forum WallStreetBets that persuaded him “we can get back at Wall Street for the 2008 crash.”

Gill’s closest followers, who watched Reddit each day for a spreadsheet he posts of his current GameStop holdings, know that it’s likely he has already sold off enough options along the way to make hefty profits — even though he’s indicated that he still holds tens of thousands of shares that are potentially worth tens of millions of dollars. The Associated Press was unable to independently verify those claims.

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Click to play video: 'Breaking down the GameStop stock market situation'
Breaking down the GameStop stock market situation

Many smaller investors use options to play the market. One such contract gives an investor the right to sell a stock at a later date at a certain price. If the share price drops, the holder can exercise the option and sell the share at the higher option price. Such options help investors protect their portfolios against sharp price declines.

Gill indicated Wednesday he’s “gonna back off” the daily updates, without explaining why.

“I don’t believe the movement will be jeopardized even if Roaring Kitty sells, which I know he won’t,” said Jenn Kruza, who first stumbled into Gill’s orbit when she joined one of his livestream chats on YouTube in September.

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Back then, the hours-long chats on Mondays, Wednesdays and Fridays were lucky to attract 20 viewers. Gill had contemplated a “short squeeze” attacking hedge funds as early as August, although his more consistent “bull thesis” was that gamers still favoured buying physical discs for their game consoles and that, in the longer term, GameStop had a chance at reinventing its business.

The chat was a comfortable outlet for casual investors like Kruza, newly unemployed after the pandemic dashed her hopes of getting a job as a music industry scout in Los Angeles.

“All my friends thought I was crazy for buying into this dead-end retailer and I wanted to hear what this guy had to say,” she said. “I could ask a question and people would answer and wouldn’t think I’m stupid for asking a question. You don’t get that a lot in finance.”

Gill was an ebullient presence, wearing cat-themed shirts and a bright red runner’s headband and playfully bantering with online guests from the basement of his home in the Boston suburb of Wilmington. A disclaimer on Roaring Kitty’s YouTube channel said he wasn’t doling out financial advice — which is subject to regulation — and asked viewers to “please understand that my style of investing is extremely aggressive and I take on a substantial amount of risk. It’s likely my approach would not be suitable for you.”

Click to play video: 'Robinhood allows ‘limited’ purchases of GameStop after halting trading on Thursday'
Robinhood allows ‘limited’ purchases of GameStop after halting trading on Thursday

He has a separate identity on Reddit’s WallStreetBets, where he’s known as DFV, for “deep value” plus an expletive. It wasn’t until December that many of his online acquaintances realized it was the same person.

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“Roaring Kitty’s streams were humble and did not imply he had such a big position,” said Joe Fonicello, a 21-year-old college student from Connecticut.

Newcomers who got caught up in January’s hype might not have realized that Roaring Kitty and the circle of WallStreetBets investors who coalesced around GameStop were not, until recently, promoting a social movement.

Kruza said she once participated in the Occupy Wall Street movement, and Fonicello attended last month’s pro-Trump Capitol rallies that preceded the deadly riot. But the discussions on Roaring Kitty’s livestream eschewed politics in favour of making money off what they considered an undervalued company.

“If he decides to take profits we should support him doing so and not get upset that it may affect the price etc or say he betrayed a cause he never signed up for,” wrote one Reddit commenter this week. “If you’ve watched the guy’s youtube you will know he’s an extremely nice and likeable guy, would hate to see people calling him judas or whatever if he decides to sell.”

Gill didn’t respond to numerous requests for comment over the past week. A woman who answered the door to his house said he was unavailable to speak.

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Gill is remembered fondly in his hometown of Brockton, a former shoe industry hub known for churning out boxing greats like Rocky Marciano and Marvin Hagler. He was a top runner in high school and college, where he ran an indoor mile in just over four minutes and three seconds, said Bill Jennings, the retired head coach of the high school track team.

“That intuition he had, he just ran with it. He was a very bright young man,” Jennings said. “I’m just hoping things work out extremely well for him and his family.”

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