Gustavo Arnal, the CFO of Bed Bath & Beyond who leapt to his death from a Manhattan skyscraper last week, had faced a “pump and dump” allegation less than two weeks earlier.
On Friday Arnal fell to his death from the 18th floor of 56 Leonard Street, an iconic new skyscraper known as the “Jenga building” on account of its unique design. New York City’s medical examiner has ruled the 52-year-old’s death a suicide, according to the New York Post.
The CFO’s death marks the latest chapter in a turbulent period for the troubled home goods retailer and meme stock phenomenon. Bed Bath & Beyond Inc.’s stock BBBY, +8.37% skyrocketed earlier this year but was hit hard last month after activist investor and GameStop Corp. GME, +11.96% Chairman Ryan Cohen disclosed he is selling a large stake in the company.
A lawsuit filed in the United States District Court for the District of Columbia on Aug. 23 alleges that Arnal and Cohen engaged in a pump and dump scheme involving Bed Bath & Beyond’s stock.
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JPMorgan Chase & Co. JPM, +0.48%, cited as a financial adviser to Bed Bath & Beyond, is also listed as a defendant in the suit from lead plaintiff Pengcheng Si.
“From March 2022 through August 2022, Cohen, in conspiracy with Gustavo, JPM, and others, engaged in a fraudulent scheme to artificially inflate the price of BBBY publicly traded stock,” the lawsuit alleges. “Upon information and belief, there has been heavy communications and interactions concerning creating a buying frenzy of BBBY stock to raise much needed capital between Gustavo, Cohen, and JPM.”
Si and her spouse acquired a total of 8,020 shares of Bed Bath & Beyond common stock at artificially inflated prices and have suffered “realized and market losses” of approximately $106,480, according to the lawsuit.
“Cohen approached Gustavo about his plan to accumulate shares of BBBY and to assume command of the company’s public float,” the lawsuit says, with Cohen allegedly convincing the Bed Bath & Beyond CFO that the plan would be a mutually beneficial one. “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.”
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“Under this arrangement, defendants would profit handsomely from the rise in price and could coordinate their selling of shares to optimize their returns,” it added. “Cohen offered to purchase a large stake in BBBY including far out-of money call options on more than 1.6 million BBBY shares with strike price between $60 and $80, in a classic attempt to spark a gamma squeeze, in exchange for Gustavo’s assurance that Insiders would not flood the market with stock.”
In a gamma squeeze, a price rally feeds on itself when the sellers of the call options, in order to hedge their positions, buy the underlying stock.
With investor interest beginning to surface as a result of increasing trading volumes, the defendants began to aggressively promote Bed Bath & Beyond shares, according to the lawsuit. Set against this backdrop, the company’s stock climbed from $4.38 per share on July 1 to $30 per share on Aug. 17, it said.
Bed Bath & Beyond told MarketWatch that it is evaluating the lawsuit. “As previously noted in our 8-K filed Aug. 31, the company is in the early stages of evaluating the complaint but based on current knowledge the company believes the claims are without merit,” it said, in a emailed statement.
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JPMorgan declined to comment, while Cohen and RC Ventures have not yet responded to a request for comment from MarketWatch.
Last week Bed Bath & Beyond provided a strategic update that involves job cuts and store closures. The company also gave a downbeat sales forecast.
Early Tuesday, the company said in a regulatory filing that it has named Laura Crossen, senior vice president of finance and chief accounting officer, as its interim CFO.
Bed Bath & Beyond shares have fallen 50.5% this year, compared with the S&P 500 index’s SPX, +1.53% decline of 17.8%.
Of 17 analysts surveyed by FactSet, five have a hold rating, and 12 have an underweight or sell rating on Bed Bath & Beyond.