The Securities and Exchange Commission (SEC) is currently investigating the ownership and unexpected sale of Bed Bath & Beyond (NASDAQ: BBBY) shares by billionaire Ryan Cohen during the era of meme stocks’ popularity among investors.
Cohen initially acquired a substantial $120 million stake in Bed Bath & Beyond, advocating for changes in the retailer’s sales strategy. However, he surprisingly divested his 11.8% interest in August 2022, shortly after expressing optimism about the company on Twitter. His five-month investment resulted in a profit of nearly $60 million. This sudden shift in ownership triggered a frenzy of trading, causing the company’s stock to surge by 34% in a single day before plummeting following the disclosure of the sale.
Individuals familiar with the matter have revealed that the SEC has requested information from Cohen regarding his trades and communications with Bed Bath & Beyond officers or directors. Additionally, the regulator has sought records from some of the company’s past and current board members. It’s worth noting that SEC civil investigations can extend beyond two years and may conclude without formal claims of wrongdoing.
Cohen, known for founding online pet retailer Chewy, has garnered a significant following among individual investors who often follow his stock picks. Notably, he assumed control of video game retailer GameStop in 2021 and currently serves as its executive chairman.
In a related development, a group of Bed Bath & Beyond investors filed a lawsuit against Cohen in a Washington, D.C. federal court last year, alleging fraud. They claim that Cohen had knowledge of undisclosed negative information about the company when he sold his shares, and they argue that his Twitter statements and SEC filings were part of a pump-and-dump scheme that inflicted significant losses on small investors.
U.S. District Judge Trevor N. McFadden, in a late July order declining to dismiss the investors’ claims, expressed concerns about the timing of Cohen’s trades, referring to them as “sketchy.”
Cohen’s ability to attract a following of retail investors gained momentum during the Covid-19 pandemic when social media and online communities, including Reddit, influenced traders to speculate on meme stocks.
According to the investors’ lawsuit, Cohen’s tweet on August 12, 2022, in response to a negative news article about Bed Bath & Beyond, included a moon emoji, which some investors interpreted as a bullish signal, causing the stock to rise by 12% that day.
In response to the lawsuit, Cohen denied misleading the market regarding his trading intentions. He explained that he decided to sell because the stock price had unexpectedly exceeded his perceived value. Additionally, he pointed out that he had previously disclosed the possibility of selling some or all of his shares, providing investors with notice of this possibility.
Judge McFadden, in refusing to dismiss the case, stated that investors had made plausible claims that Cohen’s tweet implied that Bed Bath & Beyond’s stock would rise, encouraging his followers to buy or hold shares.
In the week following his tweet, Cohen filed two public updates regarding his Bed Bath & Beyond holdings. The first, on August 16, 2022, indicated that he had not engaged in any trading over the previous 60 days. The second update, filed on August 18, stated that he had commenced selling all of his shares two days earlier.
It’s worth noting that Bed Bath & Beyond filed for bankruptcy in April.
It was revealed in June that the brand name Bed Bath & Beyond has been acquired in bankruptcy court, with Overstock.com (NASDAQ: OSTK) slated to acquire the failed brand.
The transaction saw Overstock acquire the trademarks, tradenames, website and domain names, customer database, patents, loyalty program, and other brand assets related to the Bed Bath & Beyond banner. Notably, the online retailer will not be acquiring any of the brick and mortar business, with the revived banner slated to become an online-only brand with no physical presence.
The banner was acquired for US$21.5 million, which was acquired via the US Bankruptcy Court through a winning bid on the assets.
Information for this briefing was found via The Wall Street Journal and the sources and companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.