Gamestop Chair Ryan Cohen Probed By SEC For Bed Bath & Beyond Pump And Dump

Ryan Cohen made his money by selling Chewy to Petsmart for over $3 billion. His claim to fame, however, is in being one of the key architects of the meme stonk craze which emerged in early 2021, and which culminated with Cohen becoming Chairman of Gamestop later that year with multiple pump and dump schemes orchestrated by Cohen - who has a deep fan base of individual investors who herd into the stocks he buys - before and after, including Nordstrom and Alibaba, but none more grotesque and in your face than his 2022 involvement in Bed Bath and Beyond, which we watched quietly for weeks before lashing out against what was one of the most blatant stock manipulations in recent history.

And while regular readers will recall that it was last August when we mocked Gery Gensler and his SEC for chronically failing to grasp how management and top shareholders use deep OTM call buying to spark massive gamma squeezes and stock meltups - basically what Cohen did with the now bankrupt Bed Bath & Beyond...

... it now appears that Gensler has finally figured it out, because according to the WSJ, the SEC is investigating billionaire Ryan Cohen’s ownership — and surprise dump - of Bed Bath & Beyond shares at a time when such so-called meme stocks were all the rage with investors.

As we reported at the time, in early 2022 Cohen took a 9%, $120 million stake in Bed Bath & Beyond and pushed for changes to the housewares retailer’s sales strategy, but abruptly sold his 11.8% interest in August 2022, just days after tweeting positively about the company. The five-month investment netted him a profit of nearly $60 million as many investors followed Cohen blindly into the trade, believing he would follow the same playbook as he did with GameStop.

Cohen’s apparent, if fake, interest in the company spurred a frenzy of trading that caused its stock to soar 34% in a day before collapsing when he disclosed the sales, prior to which he had gotten three new members appointed to the board.

According to the WSJ, the SEC has requested information from Cohen about his trades and his communications with officers or directors at Bed Bath & Beyon. The regulator has also sought records from some of the company’s current and former board members.

A group of Bed Bath and Beyond investors sued Cohen last year in Washington, D.C., federal court, alleging he committed fraud because he was aware of bad news about the company that hadn’t been disclosed when he sold his shares. They claim his statements on Twitter and in SEC filings were part of a pump-and-dump strategy that left small investors nursing big losses.

In an order issued in late July declining to dismiss the investors’ claims, U.S. District Judge Trevor N. McFadden called the timing of Cohen’s trades “sketchy.” According to the investors’ lawsuit, Cohen misled investors when he tweeted on Aug. 12, 2022, in response to a negative news article about Bed Bath & Beyond, that included an emoji showing the face of the moon.

Cohen's defense argued that emojis can never be actionable because they have no defined meaning. The judge disagreed, and wrote a rather strongworded opinion on the matter:

"Emojis may be actionable if they communicate an idea that would otherwise be actionable. A fraudster may not escape liability simply because he used an emoji. Just like with words, liability will turn on the emoji’s particular meaning in context."

To be sure, many investors took it as a bullish signal, indicating that Bed Bath & Beyond stock would go “to the moon,” according to the lawsuit. The stock rose 12% that day.

The judge in that lawsuit also found Cohen's 13D filing material and misleading for failing to disclose any solid plans to sell the stock. Cohen sold stock on the same day as he filed the 13D, which makes it plausible that the sales were planned before filing the 13D.

And lastly, the judge found the Form 144 plausibly material and misleading for only mentioning 'the potential sale', even though Cohen had already sold stock at the time. The judge found it plausible that Cohen had knowledge on material adverse information about the company at the time.

In his response to the investors’ lawsuit, Cohen denied misleading the market about his trading plans. He decided to sell, he said in a court filing, because the stock price had “unexpectedly increased to a value that exceeded what he believed it was worth.” Cohen also said that one of his earlier disclosures told investors that he could sell some or all of his shares. He didn’t change that statement, so investors were on notice that Cohen could dump his stake at any time, his court filing said.

In declining to dismiss the case, Judge McFadden wrote that investors “plausibly alleged that the moon tweet relayed that Cohen was telling his hundreds of thousands of followers that Bed Bath’s stock was going up and that they should buy or hold.”

In the week after his tweet, Cohen filed two public updates to his Bed Bath & Beyond holdings. The first, on Aug. 16, 2022, said he hadn’t done any trading during the prior 60 days. The second, filed on Aug. 18, said he began selling all of his shares two days earlier.

As for the "fundamental" investment case that Cohen may have had when he bought $120 million in BBBY stock, there was none: the company filed for bankruptcy in April and has closed hundreds of its stores since last year.