The shareholder lawsuit that is believed to have contributed to the death of Gustavo Arnal, the former chief financial officer of Bed Bath & Beyond, has now encountered some legal issues of its own.
A “conflict of interest” developed that “would have liked to have it thrown out by a court,” and the $1.2 billion lawsuit, which some have said was adding to Arnal’s stress, has recently been transferred to a new legal firm situated outside of Washington, D.C.
A group of shareholders filed a class action lawsuit against Arnal, 52, and majority shareholder Ryan Cohen, alleging that they engaged in a “pump and dump scheme” in which they sold off shares at a higher price, causing the shareholders to lose about $1.2 billion. Arnal was named as one of the defendants in the lawsuit.
The case was submitted barely one week before Arnal committed himself by leaping from the 18th story of the renowned “Jenga” skyscraper in the Tribeca neighbourhood of lower Manhattan.
Pengcheng Si, the lawyer in question, seems to have had a blatant conflict of interest since he was representing both the plaintiff and the defendant at the same time.
This is an emotional nightmare for Gustavo Arnal’s family, Si said in a statement to the New York Post, but he is declining to comment on any “ongoing lawsuit.” I want to express my sorrow and sympathies to Mr Arnal’s family for their loss.
Si claims in his action, filed in the District of Columbia’s United States District Court, that the alleged scam concocted by Arnal and Cohen cost him, his wife, and $106,000.
Arnal “agreed to restrict any insider sales by BBBY’s officers and directors as part of the plan,” according to the complaint, “to guarantee that the market would not be overwhelmed with a significant number of BBBY shares at a particular moment.”
Then, in an effort to drive up share prices, he reportedly made “materially deceptive representations made to investors about BBBY’s strategic corporate goals, the financial situation… and reports of shares holding and selling.”
According to MarketBeat.com, the company’s shares had a value of $1.4 million when Arnal sold more than 55,000 of them.
In the meanwhile, Cohen made $68 million by selling his shares between August 16 and August 17, just before the market fell.
Si, a resident of Virginia, filed the class action complaint on behalf of everyone who bought Bed Bath & Beyond shares between March 25 and August 18.
Si claims Cohen offered to buy a sizeable part in the business, including call options on more than 1.6 million shares at values ranging from $60 to $80. Si is suing for damages over the alleged “pump and dump plan.”
However, Si recruited the class-action litigation-focused legal firm Cohen Milstein Sellers & Toll earlier this month to take on the matter.
According to partner Steven Toll, “Once [Si] discovered how the class-action methods operate, he chose to resign as counsel.”
He was unaware of the difficulties involved in serving as both counsel and a plaintiff.
According to the complaint, Arnal and JP Morgan had “extensive conversations” about “instigating a purchasing frenzy of the company’s shares” and JPMorgan allegedly assisted Arnal and Cohen in “laundering the profits of their unlawful behaviour.”
It doesn’t explain how Si, a private investor, was able to find out about the discussions between Cohen and Arnal or how he was able to make them.
According to Bed Bath & Beyond, while the firm is still examining the complaint, it feels the assertions are unfounded based on what is known at this time.
According to the lawsuit, Arnal would make sure that participants in the scam would not flood the market with shares by insiders.
The lawsuit claims that he did this by making “materially deceptive representations and omissions concerning the financial position of the firm in an attempt to artificially boost the share price.”
According to the business’s financial reports and public pronouncements, BBBY ‘looked to be a successful turning-around company until mid-August 2022,’ the lawsuit claims.
According to the lawsuit, however, Arnal “blatantly misrepresented the value and profitability of [the company], causing BBBY to report revenues that were fictitious [and] announce publicly that the company is successfully on the way spinning off Buybuy Baby to “unlock the full value of this “tremendous asset.”
But according to the complaint, BuyBuy Baby wasn’t truly doing well financially.
Then, on August 16, Cohen submitted paperwork to the Securities and Exchange Commission detailing his ownership of 9,450,100 shares, 1,670,100 of which were covered by call options.
Additionally, it said that he kept his April call options, which wouldn’t start paying out unless the price reached $60 per share before January 20, 2023.
According to the complaint, he was shortly given three seats on the business’s board, but at that moment, he had already sold the majority of his company shares.
The complaint asserts that Cohen instead “provided [the document] for the purpose of triggering [a] purchasing frenzy of BBBY stocks so that Cohen may complete selling his shares at [an] artificially inflated price.”
According to the complaint, the day saw a 75% increase in stock prices. However, it alleges that on the same day, Cohen also filed a document indicating his intention to sell the rest of his shares and call options, which was unknown to stockholders.
It wasn’t made public until after the market closed the next day when shares fell from a record high of $30 a share to roughly $22.50.
The price then dropped another 45% to $16.16 when Arnal and Cohen submitted paperwork claiming to have sold all of their shares on August 16.
After that, it kept falling until it reached $8.78 on August 23, down more than 70% from its peak of $30 a share.
Bed Bath & Beyond was only trading at $8.63 as of September 4. It had fallen to $8.02 a share as of Sunday.
The complaint asserts that Arnal was the CFO and was aware of Cohen’s fictitious SEC filings.
Furthermore, it states that before they sold off their shares, they spoke with JP Morgan Securities LLC about their exit plan.
They “have breached their fiduciary duties by creating false filings, giving misleading representations, and pumping and dumping BBY shares,” the document claims. They “have done so for self-serving, inappropriate, and bad faith purposes, namely a desire to benefit from the sales of their BBBY shares.”
The lawsuit continues by alleging that JP Morgan Securities helped to facilitate the scheme “to launder approximately $110 million in illicit insider trading gains.”
Bed Bath and Beyond has been contacted by DailyMail.com for comment.
Arnal’s stock sale occurred on the same day that a 20-year-old college student made $110 million by selling all of his Bed Bath and Beyond stock. However, the student sold his shares just before the retailer’s stock price dropped by 23 per cent following the announcement that its second-largest shareholder intended to sell all of his shares.
Jake Freeman, a student at the University of Southern California majoring in applied mathematics and economics, purchased over five million shares in Bed Bath & Beyond in July for a total of $25 million with the aid of his well-off pharmaceutical investor uncle.
He thus acquired a minority stake in America’s biggest housewares speciality shop, owning around 6% of it. This struggling business’s worth increased as a consequence of the continuing “meme stock” bubble.
As a result, novice investors buy shares in firms that are thought to be beyond their prime, driving up the share price and giving those fortunate shareholders who sell at the appropriate moment the opportunity to make millions of dollars.
After the retailer’s stock price soared to $27 per share on August 16, Freeman, whose family is from the New York City region, approximately sold more than $130 million worth of shares. Arnal did the same thing the next day.
Arnal committed himself by jumping to his death from the 18th story of the opulent Jenga building in Manhattan’s Tribeca neighbourhood only one week after the damaging lawsuit was filed.