Bed Bath & Beyond: A Case Study of Following the Money

By TradeSmith Research Team

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Money goes where it’s treated best, and for 16 days in August, it was treated very well if it was invested in Bed Bath & Beyond Inc. (BBBY).

The share price had a meteoric rise of 445.34%, turning every $5,000 invested into roughly $27,000.

Sensational news stories abounded, including one about a 20-year-old college student who was able to net a $110 million windfall by selling the 5 million BBBY shares he bought in July for just under $5.50 per share.

With the price spiking far beyond a reasonable value for such a long-struggling business, it was a question of “when” and not “if” the stock price would plummet.

That tipping point arrived on Aug. 18 and 19, and when the dust cleared, it appeared that there may have been something happening behind the scenes within the company that artificially increased the stock price.

A class action lawsuit filed on Aug. 23 claims that a majority shareholder approached former CFO Gustavo Arnal (deceased on Sept. 4) to conduct a “pump and dump” scheme…

What Happened at Bed Bath & Beyond

The lawsuit alleges that Ryan Cohen, the founder of Chewy Inc. (CHWY) and the chairman of GameStop Corp. (GME), approached Arnal with the scheme.

As part of the scheme, Arnal allegedly issued misleading statements that would showcase the company in a better light.

He is also accused of regulating insider sales from Bed Bath & Beyond directors and officers to ensure that there wouldn’t be a large number of BBBY shares available for a certain time.

According to the lawsuit, these actions together would have artificially increased the stock price.

The lawsuit gives further support to this being a potential “pump and dump” scheme between Cohen and Arnal, as both men filed forms to sell all of their shares before the BBBY stock price would go on to plummet.

The lawsuit also alleges that Cohen and Arnal met with JP Morgan Securities LLC to discuss their exit strategy before they sold their shares, and that JP Morgan aided and abetted the operation.

Arnal sold 42,000 shares, valued at $1 million total; Cohen sold his shares for a profit of $68.1 million.

In contrast, the group of shareholders who brought on the class action lawsuit claim they lost $1.2 billion.

There is still a lot unfolding here, but there are two immediate takeaways.

How to Stop Being Separated from Your Hard-Earned Money

When you see a stock price like BBBY start to skyrocket, especially in a bear market, it’s easy to feel a pang of FOMO (fear of missing out).

But when that starts to happen, take a step back and try to remove the emotion from investing. Bed Bath & Beyond has been in our Red Zone since September 2021, and it has a sky-high-risk Volatility Quotient (VQ) of 82.07%.

Armed with that information, you can avoid becoming a victim of buying high and being forced to sell low.

Within the TradeSmith system, there’s also a new edge you’ll soon have the opportunity to learn more about within the next few days.

On Sept. 20, you can hear from an expert who had the data showing that people should have stayed away from this stock as early as 2014.

This expert tracks the flow of money in and out of stocks in real time so you don’t have to wait days, weeks, or months to find out what big money is buying and selling.

To get a taste of how his system works, take a look at the chart below. The yellow bars signaled in stark clarity how BBBY was a stock to avoid eight years ago.

You can see that from how the stock performed since then, it has paid to stay away.

Normally, this is the type of information that only hedge funds and high-net-worth individuals would have access to, which is why the expert we just mentioned is being called the “most wanted man in finance.”