Ryan Cohen makes crazy profits. But to whose detriment?

Just before Labor Day weekend, Gustavo Arnal, CFO of Bed Bath & Beyond, jumped from the “Jenga Building,” Tribeca’s tallest skyscraper. Arnal reportedly didn’t leave a note, but his plunge came a day after he struck a $500 million deal to prop up the struggling retailer. Bed Bath & Beyond, on the verge of bankruptcy, announced days earlier that it would cut 20% of its staff and close 150 stores. There was another wrinkle in the mystery of Arnal’s death: a perfectly timed $1.4 million stock sale at the height of Bed Bath & Beyond’s stock surge in August, a frenzy instigated by a 37-year-old Florida man named Ryan Cohen – who had launched a class action lawsuit alleging Arnal and Cohen conspired to pump and dump the company’s stock.

They made a funny couple. Arnal was a Fortune 500 veteran who had spent most of his career at the multinational Procter & Gamble; his colleagues would remember him as a professional and a workaholic. Cohen, on the other hand, has in recent years become the king of Wall Street’s meme stock, posting and working his way — one poo emoji at a time — to becoming Reddit’s version of a populist hero. It’s unclear what relationship Arnal and Cohen had, if any (there is said to be no record of private communications between them), but it was hard to dismiss as mere coincidence that the two men profited from the mark. Cohen’s YOLO investment fund.

The tragic consequences of Bed Bath & Beyond’s meteoric fortune cast an even darker cloud over Cohen’s reputation. But in all likelihood, the phenomenon of meme stocks is here to stay – even if Cohen and his ilk enjoy the backs of the “monkeys” who support them.

“Why waste money on college when Wikipedia is free? » Cohen tweeted in late January, along with a pornographic image from the Wikipedia page for sex position 69. Cohen that day had scooped up another quarter of a million shares of Bed Bath & Beyond. The purchase added to a stake that, at its peak, was worth more than $175 million and made Cohen one of the biggest shareholders in the coupon-loving big-box chain. In March, the company added three of Cohen’s director picks to its board.

It has emerged that Cohen, the billionaire founder of Chewy, “the Amazon of Pets”, was using the same playbook he applied to video game retailer GameStop. In early 2021, Cohen led an activist campaign to resurrect the company’s left-for-dead stocks, enticing retail investors on Reddit to drive up his stock price and, in the process, blow up a hedge fund or two that had bypassed GameStop. With Cohen’s investment, Bed Bath & Beyond had officially become a meme store.

After an initial pop on news of Cohen’s involvement, its stock price fell back, plunging below $5 in July. But in August, when Cohen had to disclose his position in Bed Bath & Beyond due to a change in the company’s total share count, the Reddit monkeys interpreted that to mean that Cohen was once again bullish on the company — despite the fact that he hadn’t traded a stock in months. The filings once again showed that Cohen had very out-of-the-money call options on Bed Bath & Beyond, essentially betting that the stock would rise above $80. It was old news, but shares of Bed Bath & Beyond jumped 70% following the revelations.

Retail investors had played Cohen’s game. By the end of the next day, he had sold all of his stock, according to a later filing. The revelation sent shares of the company plummeting, while Cohen walked away with a profit of $68 million.

Now, some investors are wondering if Cohen planned this all along – exploiting his reign as king of memes to run what critics call a pump-and-dump system. Out-of-the-money options looked particularly suspicious to investors. “Why are you buying $80 calls with a stock below $20 if you’re not looking to manipulate the stock? says Marc Cohodes, a famous short seller.

It’s hard to allege that Cohen committed a securities violation based on the mere fact of disclosing accurate regulatory information and legally selling stocks on the open market — which has upset many people all the more. Wall Street. “The way he did it smacks of pumping and dumping, it just stinks,” says Empire Financial Research CEO Whitney Tilson, who filed a lawsuit with the SEC alleging Cohen engaged in securities manipulation through pumping and dumping. scheme. “This has been going on forever – Ryan Cohen just came up with a clever, innovative, and nefarious twist.”

In the days following Cohen’s sale, however, the true extent of Bed Bath & Beyond’s woes became clear. “I think it’s very problematic for Ryan Cohen to put individuals on the board, dump all of his stock, and then the next day we find out that Bed Bath & Beyond has hired restructuring experts and they’re now in financial difficulty,” said Daniel Taylor, a Wharton professor who specializes in fraud.

And then Arnal threw himself from the top of a building. The suit naming the pair doesn’t look particularly menacing. (The plaintiff, for his part, is an immigration lawyer who was representing himself when he filed it.) A spokesperson for Bed Bath & Beyond said the stock sales d’Arnal “were part of a predefined plan” organized in April, although they were the only ones he carried out all year for non-tax purposes. Still, one wonders if Cohen was given a warning that got him out on the spur of the moment. When markets reopened on Tuesday after Labor Day, shares of Bed Bath & Beyond fell 18%.

The most respectable players in the market have turned to Cohen. “He completely destroyed his reputation,” Tilson says. They also wonder if he is the business savvy many think he is. “There’s a lot of people who sold a lot of stuff for a lot of money that I wouldn’t trust to walk a goddamn dog,” Cohodes says. “It’s not like this guy’s Warren Buffett.

Since GameStop, Cohen, who is the chairman of the board of directors of this company, did not give any interviews. (Cohen did not respond to repeated requests for comment on this story.) The company’s earnings calls, consisting of executives reading a script, are more like “hostage videos,” says analyst Michael Pachter. games at Wedbush. “The biggest change he made was the complete lack of transparency,” says Pachter, who went from a “buy” rating to a “sell” rating on GameStop shares. Meanwhile, GameStop has lost more than half of its market value over the past year. Last holiday season — historically a profitable time for GameStop — the chain reported a loss for the first time, according to Pachter.

So far, says Pachter, the cornerstone of GameStop’s business under Cohen appears to be an NFT Marketplace, which it launched in July a week after announcing layoffs. “When Ryan Cohen says we’re going to do an NFT swap at GameStop, it’s like McDonald’s saying, ‘We serve 50 million people a week burgers; let’s start selling them groceries,’” Pachter says.

What Cohen did is meme. In the absence of any articulated strategy, Reddit looks for clues to Cohen’s thinking in his bathroom humor and lewd GIFs featuring boners. One particularly picked tweet, the first post Cohen posted after GameStop’s meme-based stock spike in early 2021, was an image of a McDonald’s soft serve cone with a toad emoji.

Cohen’s tweets likely have no underlying meaning. But he’s managed to cultivate a social media persona that’s expertly choreographed for the age of memes, a Musk-like aura that combines an air of mystery with Reddit-appropriate references that directly flatter the apes. He convinced throngs of retail traders that he is a genius even though he betrayed them, leaving them holding the bag of worthless stock. As long as people like Cohen and Musk are able to do that, there’s no telling what they can do at the market or who can stop them, other than the monkeys themselves.