One World Trade Center and the 'Jenga Building' in Tribeca (New York).
Key takeaways
- Gustavo Arnal, the CFO of Bed Bath & Beyond, fell to his death less than two weeks after being named in a class action lawsuit where he was accused of participating in a “pump and dump” scheme.
- It’s unknown how the company will respond to this news while trying to manage the lawsuit and financial issues.
- Ryan Cohen, an activist investor, is also named in the lawsuit, accused of working to artificially increase the price of BBBY stock.
Bed Bath & Beyond confirmed Sunday morning that its Chief Financial Officer, Gustavo Arnal, died when he fell from the 18th floor of the ‘Jenga Building’ in the Tribe
Arnal came to the company in May of 2022 after a stint at Avon, and he previously spent about 20 years at Procter & Gamble in various executive roles. The news of the sudden death comes less than two weeks after it was revealed that Arnal was accused in a class action lawsuit of participating in a “pump and dump” scheme aligned with Ryan Cohen.
The company is in a dire financial position, and this devastating news only adds to the turmoil. We’re going to look at the recent performance of the BBBY stock and the controversies surrounding the company.
BBBY Stock
We recently wrote about the top meme stocks, breaking down the interesting August that Bed Bath & Beyond stock had. BBBY stock was one of the meme stocks that had fast rallies caused by community boards on Reddit when the movement first began unofficially in the summer of 2020. The biggest issue with these meme stock rallies was that the price of the stocks was going up for no reason other than folks gathering on forums to work together to drive them up. In other words, the stock price was completely disconnected from the company’s actual financial performance.
It was believed that the group of retail investors who got together to boost these stocks' value artificially would get bored or move on once the pandemic loosened up. However, it’s become apparent in 2022 that these meme stock rallies aren't going away.
Bed Bath & Beyond has been struggling recently after announcing on August 31st that they were closing down 150 stores and letting go 20% of their workforce. On the date of Arnal’s death, shares of BBBY stock were down 63% from the August peak. The BBBY stock price was $8.63 at closing on Friday, September 2nd.
BBBY stock controversies
There are many controversies and issues regarding BBBY stock. The New York Stock Exchange even had to halt trading for the BBBY stock this summer due to the increasing price volatility.
Ryan Cohen, the activist investor, bought millions of shares in the company this past March through his activist firm RC Ventures, believed to be about a 10% stake. This gave hope to retail investors who hoped he would help turn the company around. This turnaround did not come to fruition as Cohen completely withdrew his position from BBBY stock, selling his shares on August 16 and 17, causing the stock price to plummet by about 43% from the previous high.
A Securities and Exchange Commission filing then confirmed that Cohen did indeed sell his entire stake in Bed Bath & Beyond, with a profit of more than $58 million. Cohen had sold 7.78 million shares at average prices that ranged from $18.68 to $29.22.
There was some controversy with how quickly Ryan Cohen exited his BBBY stock position because he had increased investor confidence when he bought call options, where he essentially bet that BBBY shares would rise to as high as $80 on Monday, August 15, 2022. This optimistic view led to retail investors deciding to invest in BBBY stock. BBBY shares then surged more than 70% in the trading session on Tuesday, August 16, 2022, leading to a trading halt. Then, when the news of Cohen’s exit surfaced, the shares tanked.
Investors turned to social media to blame Cohen for this sudden spike and collapse. Accusations were made on social media platforms that this was an orchestrated “pump and dump” scheme where the price was artificially inflated so that those with a majority of shares could walk away with a hefty profit at the top.
This leads us to the most recent and significant controversy over BBBY stock, which is the class action lawsuit itself.
BBBY lawsuit
The lawsuit was filed in the United States District Court for the District of Columbia on August 23 by a group of shareholders who claim that they lost roughly $1.2 billion when the Bed Bath & Beyond share price plummeted due to the individuals listed participating in an alleged “pump and dump” scheme.
Bed Bath & Beyond, Gustavo Arnal and Ryan Cohen are listed as defendants in this class action lawsuit. The lawsuit alleges that Cohan approached Arnal about a plan to control shares of BBBY stock so that they could both profit. It’s further alleged that Cohen, Gustavo and JP Morgan Securities LLC (another defendant in the lawsuit) discussed their plan of hyping up the stock between March and August, as well as an eventual exit from their positions.
The lawsuit specially mentions:
“With control over a significant portion of the public float, Cohen would essentially act as a price support for the stock while Gustavo would act in a similar capacity by controlling the sale of shares by Insiders. Under this arrangement, defendants would profit handsomely from the price rise and could coordinate their selling of shares to optimize their returns.”
BBBY stock shot up from $4.38 to $30 per share from July 1, 2022 - August 17, 2022. Arnal sold 55,013 shares of BBBY stock on August 16, 2022, for a total amount of $1.4 million, according to calculations done by Reuters based on SEC filings. Arnal still had about 255,400 shares remaining in BBBY stock.
The catalyst for the spike in price during the week was the news that Ryan Cohen (through RC Ventures) had bought call options on Monday, August 15, 2022, betting the stock price would go up. Those who follow Ryan Cohen then started purchasing shares of BBBY stock over the next few days, which led to the aforementioned astronomical surge in price only for the sudden collapse.
Bed Bath & Beyond officials have declined to comment on the lawsuit as they are requesting respect and privacy for Arnal’s family during this time. Ryan Cohen has yet to comment on this lawsuit as well.
What’s next for BBBY stock?
Is BBBY stock on its last legs? Will the company make it through these dramatic events? It’s difficult to say what the future holds for BBBY, but it certainly looks bleak.
Even though the company was fortunate enough to be a part of the meme stock rallies that raised its share price while the business was falling apart, it’s going to be interesting to see what happens with meme stocks in general. Recently, a series of videos were released where the SEC takes shots at meme stocks and margin accounts. It’s unknown what role the SEC could play in the future of meme stocks.
It’s also unclear if BBBY stock will be able to rebound. The company has announced plans to lay off 20% of the workforce while closing down 150 stores as they reported a $358 million loss and $3.3 billion in debt. Unfortunately, we have to wait until September 29 for the full financial results for Q2 to come out.
Investing in the stock market can be risky, and volatility should be expected with the current market conditions. If you want to take the guesswork out of investing, you can try a Q.ai investment kit.
To learn more about shorting and other classic trade strategies, fully updated in the modern investing school, check out the Q.ai Short Squeeze Kit for investments in this unique category of stocks. The Short Squeeze Kit gathers historical and technical financial intel on thousands of U.S. equities, including relevant sentiment information (news, search data, etc).
Download Q.ai today for access to AI-powered investment strategies. When you deposit $100, we’ll add an additional $100 to your account.
