Did Ryan Cohen, his firm RC Ventures LLC, JP Morgan Securities LLC and Bed Bath & Beyond’s Executive Vice President, Chief Financial Officer & Treasurer Arnal Gustavo manipulate the market with the purchase and sale of BBBY stock?
This post is open for investors to gather facts, and findings and track their exposure to related lawsuits. We invite investors and shareholders to contribute to this investigation for their own benefit, add events to the factual timeline below and vote on events’ pertinence.
A lawsuit was subsequently filed. We update this post regularly.
Fortune publishes an article entitled “Calls for SEC probe mount after meme stock king’s potential pump-and-dump of Bed Bath & Beyond shares” describing how investors are calling for the Securities and Exchange Commission’s Gary Gensler to investigate whether activist investor Ryan Cohen may have manipulated markets with his trades in Bed, Bath & Beyond, known by its BBBY ticker symbol.
$BBBY (-18% AH) – Worthy of SEC investigation, Ryan Cohen’s venture fund created a gamma squeeze buying up 1.6M Jan 2023 $60 and $80 strike BBBY calls, only to crush BBBY holders by filing to sell his 9.45M BBBY (9.8% stake) on Wed causing BBBY to plummet. https://t.co/yhMt8WAAAY
— Gary Black (@garyblack00) August 17, 2022
Archegos, Tiger, etc. connect the dots…🧐
— Henry Rearden (@Integrity4mkts) August 17, 2022
A Bed Bath & Beyond Corporation (BBBY) investor filed a federal securities class action lawsuit on behalf of a class consisting of all persons or entities, other than Bed Bath & Beyond Corporation (BBBY), J.P. Morgan Securities LLC, RC Ventures LLC, Ryan Cohen, and Arnal Gustavo and their affiliates, who purchased or otherwise acquired BBBY common stock from March 25, 2022, to August 18, 2022, inclusive.
According to the complaint, defendants made materially false and/or misleading statements, as well as failed to disclose material adverse facts about the company’s business, operations, and prospects. Specifically, defendants allegedly failed to disclose to investors that:
“Upon information and belief, at least on several occasions from March to August 2022, Cohen, Gustavo, and JPM discussed their plan of hyping the stock and exiting their positions of BBBY shares at some point. 27. On August 16, 2022, a Schedule 13D was filed to the SEC, on which Cohen stated that “[a]s of the date hereof, RC Ventures directly beneficially owned 9,450,100 Shares, including 1,670,100 Shares underlying certain call options, constituting approximately 11.8% of the Shares outstanding. Mr. Cohen, as the Manager of RC Ventures, may be deemed to beneficially own the 9,450,100 Shares directly beneficially owned by RC Ventures, constituting approximately 11.8% of the Shares outstanding.” (See Cohen’s Schedule 13D, attached hereto as Exhibit 1.) The filing also revealed Cohen had held on to his April call options that would only begin to pay out should the stock hit $60 a share before January 20, 2023.
The filing was signed by Cohen, whom knew that the information contained in the filing was false. Indeed, Cohen did not hold 9,450,100 Shares on August 16, 2022 when he submitted the Schedule 13D.
The Schedule 13D filing was materially false and constitutes a false written filing because (a) upon information and belief, Cohen sold most of the 9,450,100 Shares when the filing was submitted; (b) Cohen submitted Schedule 13D for the purpose of creating buying frenzy of BBBY stocks so that Cohen can finish selling his shares at artificially inflated price on the public; and (c) Cohen actually dumped most of his shares “as of the date hereof,” on August 16, 2022.
Investors, not knowing that Cohen’s filing was false and misleading, continued to buy millions of shares of BBBY stock. Spurred by Cohen’s filing, BBBY stock price has swung 75 percent from $15.36 to $28.6 later that day.
Also on August 16, 2022, with Schedule 13D in place, despite Cohen having almost liquidated all his BBBY positions, Cohen filed Form 144 on paper providing notice of his intent to sell up to all his shares and additional call options. This filing was not disclosed to the public until the market closed the next day, August 17, 2022, at 5:07 pm, when Cohen finished his dumping of BBBY shares. Right after the disclosure of the filing, BBBY shares tumbled after hours from record high $30 per share to around $22.5 per share.
On August 18, 2022, Defendants Cohen and Gustavo, respectively, filed Form 4 with the SEC reporting that they had sold all their BBBY shares on August 16, 2022. (See Cohen and Gustavo’s Form 144, attached hereto as Exhibits 2-3.) In reaction to this news, BBBY Stock dives to $16.16, or over 45%, on unusually heavy trading volume.
On August 19, 2022, BBBY stock plunged to a new low of $9.68, dropping another 52.6% from the previous day. 36. BBBY’s stock price continued to decline over the next two trading days, falling an additional 16.23%, to close at $9.24 per share on August 22, 2022, and falling another 4.98% to close at $8.78 on August 23, 2022, dropping over 70% from August 17’s highest price of $30 per share in five trading days after Defendants dumped their shares. Attached hereto as Exhibit 4 and the BBBY Price /Volume History chart (Source: New York Post, August 19, 2022) below. This reflects less than a $800 million market capitalization for the Company, after its Insiders profits at least 110 million dollars alone from their Insider sales from August 16 to August 17, 2022.”
This case is still in the Initial Lawsuit state.
A securities class action lawsuit is a lawsuit on behalf of investors considered in a similar position, who purchased or sold securities of a company during a certain period and suffered losses because of an alleged wrongdoing. Security is often broadly defined to include bonds, stocks, options, derivatives, and other instruments.
Section 10b of the Securities Exchange Act of 1934 makes it unlawful to “use or employ, in connection with the purchase or sale of any security” a “manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe.” 15 U.S.C. § 78j(b). It is therefore forbidden to: employ any device, scheme, or artifice to defraud; make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made not misleading; or engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.
Generally, to be successful, the plaintiff must plead the following:
We invite you to read this article from the American Bar Association which, although from 2014, provide ample information to explore the world of class actions brought under section 10b of Securities Exchange Act of 1934.
Section 11 of the Securities Act of 1933 provides “an express right of action for damages . . . when a registration statement contains untrue statements of material fact or omissions of material fact.” (Thomas Lee Hazen, Treatise on the Law of Securities Regulation, §7.3 at 581 (4th ed. 2002)). Practically, buyers in an initial public offering (IPO), relying on the registration statement and prospectus, are given the right to file a complaint against the company and other signatories for losses sustained as a result of the deficient registration statement and prospectus.
Generally, at least four elements must be plead for the claim to survive:
A shareholder derivative lawsuit is a lawsuit brought by a shareholder of a company, on behalf of the company, against an insider (director, board of directors, executives) or a third-party to redress wrongs and harms to the company. Simply speaking, this mechanism exists because one cannot expect directors and insiders to sue themselves for harms they have done to the company.
The Private Securities Litigation Reform Act (PSLRA) of 1995 was enacted to tighten requirements for securities class actions to be brought in the United States. One of the mechanism put in place was a 60-day period, following the filing of the initial securities class action, for any shareholder considered in similar position to the one filing the initial class action complaint, to ask to be named lead plaintiff. Practically, any time a securities class action falling under the PSLRA is filed with a court, law firms advertise their willingness to pursue the case and invite other investors similarly situated to contact them.
The lead plaintiff in a securities class action is a shareholder who suffered losses related to the purchase or sale of a company’s security during a certain period of time, that is appointed with its choice of counsel to represent the rest of the similarly situated shareholders. To be appointed lead plaintiff, you need to contact a law firm, have them examine your losses and agree to be represented by them and ask to make a motion with the court to be appointed lead. The court will then look at all the motions from the different shareholders and make its decision based on a certain set of criteria. Your inability to be lead plaintiff shall not prevent you from any potential recovery in the event of a settlement.
A class period is a set period of time during which the purchasers or sellers of a company’s security claim in a class action lawsuit to have suffered losses. Class periods are based on the merits of the case and may evolve with the litigation.
A class action complaint will define the initial class of investors: the class period and the persons included in the class. You should look at the definition of the class to determine whether you are included or not. However, the class definition will evolve with the litigation. Its definition is very likely to change between the initial complaint filed and the possible settlement. Generally speaking, you should rely on the definitions of the class stated in a stipulation of settlement to determine whether or not you will be entitled to any recovery (see below about the opting-out mechanism).
You may. The mechanism is called opting-out of class. A lead plaintiff will agree on the potential recovery ratio in a settlement. You may have an interest in opting-out of a class if you have sustained large losses and believe bringing a separate lawsuit would entitle you to a larger ratio of recovery.
You may be able to bring a claim to arbitration in certain scenarios. We encourage you to contact a law firm of your choice to inquire about such alternative dispute resolution mechanism.
Am I affected? If you transacted during the class period from