It’s a phrase we’ve all heard countless times, usually when engaging in a dangerous pastime. What’s fun and innocuous now could quickly get out of hand, leading to unintended consequences, such as the recent tragic death of Bed Bath & Beyond’s CFO.
For the last year and a half, the meme stock phenomenon has been treated as little more than a joke by those not participating in or being affected by the mania. People laughed and cheered when a major hedge fund fell victim to the mechanizations of an online message board. These faceless and often nameless fund managers weren’t real people. Who cares if they lost everything? It’s all fun and games, and nobody was getting hurt.
Despite seemingly being well on the way to bankruptcy, the company attracted the attention of meme investors thanks to the large proportion of short positions and the revelation that activist investor (and meme stock investor folk hero) Ryan Cohen owned 10% of the company.
The stock skyrocketed from $4.60 to $23.08 in a matter of weeks, only to plunge right back down after Cohen sold his entire holdings near the peak. On August 23rd, with the stock down 62% from its peak, a shareholder filed a lawsuit accusing Cohen and Arnal of participating in a “pump and dump scheme.
Source: CNBC Television YouTube
According to the lawsuit, which stated:
“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 rise in price and could coordinate their selling of shares to optimize their returns. Cohen has historically employed pump and dump schemes to raise much-needed capital and has ignited several meme stocks to jaw-dropping heights.”
Eleven days after the lawsuit was filed, Arnal jumped 18 stories from his Manhattan apartment. While it’s currently unknown why he killed himself, the timing is sure to raise some eyebrows. We’ll have to wait and see if more details come out.
For its part, Bed Bath & Beyond denied all claims made in the lawsuit and believed they were “without merit.” Arnal’s death shouldn’t stop a trial from proceeding, as there are other defendants named in the lawsuit, including Cohen. Until a court hearing or a settlement outside of court, we’ll likely hear very little about the case.
Shares of Bed Bath & Beyond last traded at $7.86 per share, up +11.58% on the day. YTD, BBBY stock is down -48.19%.
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Disclaimer: Wealthy VC does not hold a position in any of the stocks mentioned in this article.