A class action lawsuit alleges that the executive vice president and chief financial officer of Bed Bath & Beyond Inc BBBY, who died Friday after falling from the 18th floor of a New York City skyscraper in what the medical examiner said was a suicide, and GameStop Corp. GME Chairman Ryan Cohen, artificially inflated the company's value through a "pump and dump" scheme.
The Shareholder Lawsuit: Gustavo Arnal, who died at 52, and Cohen, are named as defendants in the class action lawsuit filed Aug. 23 in the United States District Court for the District of Columbia.
Arnal, who had been employed by Bed Bath since 2020, sold 55,013 shares in the business in several transactions totaling almost $1.4 million between Aug. 16 and 17. After the sale, the late CFO still had around 255,400 shares.
Related Link: Gustavo Arnal Net Worth & Insider Trades
The investors behind the lawsuit said that after believing the financial reports and SEC filings of Bed Bath & Beyond, they closed short positions and initiated long positions in the shares.
Lead Plaintiff Pengcheng Si and her spouse said they purchased a total of 8,020 shares of Bed Bath common stock within the time frame specified below at fraudulently inflated prices and have incurred realized and market losses of about $106,480.
According to the plaintiff who accessed the company's financial reporting and public statements through mid-August 2022, Bed Bath & Beyond seemed to be a successful turnaround business. Bed Bath appeared to be "fundamentally reshaping" its goals and spinning off the Buybuy Baby brand in order to move quickly toward profitability and growth, the lawsuit said.
This picture was almost entirely fiction, the lawsuit alleges.
Benzinga has reached out to Bed Bath & Beyond for comment on the class action lawsuit.
The Accusations Against Bed Bath & Beyond: Cohen conspired with Arnal, JPMorgan Chase and others from March through August of tbhis year to conduct a fraudulent scheme to artificially inflate the price of Bed Bath shares, the complaint states.
More specifically, with JPM's support and complicity, Cohen, Gustavo and others misrepresented the worth and profitability of Bed Bath, enabling the company to declare fake sales, the lawsuit said.
Despite the fact that the Buybuy Baby business was small with low revenues and that outside companies would only pay Bed Bath a small portion of the stated prices, the company continued to make public statements claiming that it was successfully spinning off Buybuy Baby in order to "unlock [the] full value" of this "tremendous asset."
According to the lawsuit, Cohen, Arnal and JPMorgan had frequent conversations and interactions regarding artificially inducing a purchasing frenzy for Bed Bath common stock in order to acquire desperately needed financing, similar to what Cohen was accused of doing with GameStop common stock in 2021.
“Cohen approached Gustavo about his plan to accumulate shares of BBBY and to assume command of the company’s public float. Cohen convinced Gustavo that their plan would be a mutually beneficial one.”
The lawsuit alleges “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, [Arnal and Cohen] would profit handsomely from the rise in price and could coordinate their selling of shares to optimize their returns.”
Plaintiff Si said that Cohen offered to purchase his stake in Bed Bath, including 160,000 far out-of-the money call options contracts, as well as 7.78 million common shares amounting to 11.8% of the outstanding shares, in exchange for hyping the stocks share price.
In a document submitted to the SEC on Aug. 16, Cohen said he owned 9,450,100 shares, 1,670,100 of which were covered by call options.
According to the lawsuit, the disclosures were fake, and Cohen had already liquidated the majority of his holdings. The false filings were made to drive a purchasing frenzy and enable Cohen to complete the sale of his stake at inflated prices, according to the complaint.
According to the lawsuit, Cohen gained $110 million from the gamma squeeze, and other stockholders, including Jake Freeman, a 20-year-old college student, made $105 to $110 million from the Bed Bath frenzy.
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