Bed Bath & Beyond (NASDAQ:BBBY) stock has been rising all week but its hot streak may be over soon. Months after the meme stock sensation suffered a crash that shocked the digital investing community, shares are facing a new challenge. Specifically, a class-action lawsuit alleges that famed investor Ryan Cohen engaged in market manipulation tactics to artificially drive up BBBY stock up.
Earlier this year, Cohen sold BBBY stock and walked away with a significant profit. Now, a Philadelphia-based law firm is conducting an investigation into claims made against the company on behalf of shareholders. According to its assessment, investors who held BBBY stock on or before March 1, 2022 may be entitled to have their funds returned.
What does this lawsuit mean for Bed Bath & Beyond? Let’s take a closer look at what investors can expect.
BBBY Stock: Inside the Lawsuit
This lawsuit comes at a highly inopportune time for the company. After a highly turbulent season, BBBY stock has finally pulled back into the green, gaining more than 11% over the past five days. This comes after a disappointing Black Friday and Cyber Monday. However, experts have speculated that shares are likely to take another dive as the holiday season approaches due to bleak financials and declining customer sentiment.
These experts likely didn’t account for a class-action lawsuit, though. According to an investigation summary provided by the Grabar Law Office, Cohen orchestrated a market manipulation scheme, which both Bed Bath & Beyond and JPMorgan (NYSE:JPM) willingly participated in and provided assistance for.
Cohen purchased a stake worth almost 10% in the company in March 2022, enabling him to secure three seats on the company’s board of directors. He also submitted a strategy that he believed would help Bed Bath turn around, including spinning off its Buy Buy Baby franchise.
Over the next five months, however, BBBY stock continued to plunge amid reports of soaring debt and cash flow problems. Rather than adopt Cohen’s turnaround proposal, the company opted to seek new loans instead. Additionally, Bed Bath also issued millions of new shares, a move that stood to dilute Cohen’s holdings. Grabar alleges that this left him “underwater by tens of millions of dollars” with no turnaround in sight. This supposedly compelled him to resort to underhanded activity. According to the report:
“To carry out his scheme, Cohen needed to drive up the stock price and flood the market with trading activity so that he could sell his shares quickly, secretly, and at a profit. Cohen accomplished that goal by leveraging his loyal following among retail investors, many of whom closely followed his every public statement, filing, or social-media post to guide their own investment decisions.”
The Bottom Line
According to Grabar Law Offices, Cohen used deceptive action to convince his followers that he planned on holding out on BBBY stock on the grounds that he saw it rising. This resulted in the meme stock army buying shares in record numbers, driving the price up from less than $5 per share to $30 on Aug. 17. As shares hit this intraday trading high, Cohen cashed out on his own holdings, netting roughly $58 million in profit. This action sent BBBY stock crashing back down.
BBBY stock has struggled considerably since Cohen walked away. Triggering the crash caused the famed investor to lose his status as the “meme stock king.” But thanks to this looming lawsuit, some of the investors who took losses as a result may see some justice.
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On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.