Bed, Bath & Beyond executive’s death followed allegations of fraud

The unexpected death of the former chief financial officer of Bed, Bath & Beyond amid allegations of fraud against him raises further questions about the struggling chain.

Gustavo Arnal died Friday after jumping from a luxury skyscraper in midtown Manhattan. The New York City Medical Examiner’s Office ruled her death a suicide.

The 52-year-old executive’s passing comes as the once-popular retailer, whose sales and share price have plunged since last year, struggles to recover. Arnal is also named as a defendant in a securities lawsuit that accuses him and his billionaire employer and entrepreneur Ryan Cohen of a pump-and-dump scheme to inflate shares of Bed, Bath & Beyond.

Bed, Bath & Beyond did not respond to a request for comment. On its website, the company called Arnal’s death a “shocking loss”.

“Gustavo will be remembered by all he worked with for his leadership, talent and stewardship of our business. I am proud to have been his colleague, and he will be truly missed by us at Bed Bath & Beyond and all those who had the pleasure of knowing him,” Harriet Edelman, president of the company, said in a statement.

GameSpot, of which Cohen is president, also did not respond to a request for comment.

A stock market shock – then a lawsuit

Shares of Bed, Bath & Beyond have been on a roller coaster, soaring during the stock meme frenzy of 2020 before disappearing last year. The stock jumped again in March when Cohen, the founder of online pet products company, disclosed a nearly 10% stake in the company.

Cohen is credited with engineering a turnaround at GameStop, and his ownership was seen by some retail investors as a positive signal for Bed, Bath & Beyond. To kick off the takeover of the homewares business, he quickly helped oust Bed, the CEO and chief marketing officer of Bath & Beyond and appointed two new directors.

Cohen filed more documents with the Securities and Exchange Commission on August 16, reaffirming his ownership of Bed, Bath & Beyond. This led the stock to jump up once more. But on the same day, Cohen immediately began selling his stake, prompting a selloff that drove the company’s shares to a third of their original price within a week.

This prompted some to call for an SEC investigation, and on August 23, a shareholder lawsuit was filed in Washington, D.C., in district court alleging securities fraud.

The lawsuit, which seeks class action status, complaints that Cohen, Arnal, JPMorgan and others “engaged in a fraudulent scheme to artificially inflate the price of publicly traded BBBY shares” and “obviously misrepresented the value and profitability of BBBY” to entice retail investors to buy actions.

According to the lawsuit, Cohen and Arnal concocted a scheme whereby Cohen would publicly promote the company’s stock while Arnal would limit insider sales of stock, driving up its price. The complaint also claims that Cohen lied when he reaffirmed his ownership of the company and alleged that he began selling his shares at that time.

Arnal also sold 55,000 shares of Bed, Bath & Beyond on August 16, although his disclosure indicates the sale plan began in April.

Cohen and Arnal “engaged in insider trading and fraudulent reporting to the SEC,” according to the suit. It also alleges that the two “took advantage of the inflated stock price and used fraudulent and misleading documents with the SEC to sell all of their BBBY stocks and options at artificially inflated prices to innocent and unsuspecting public investors, then retained control of the profits”.

Bed, Bath & Beyond told investors on August 31 securities deposit that “The company is in the early stages of assessing the complaint, but based on current knowledge, the company believes that the claims are without merit.”

Leadership vacuum

Even before the shareholders’ lawsuit, Wall Street’s opinion of Bed, Bath & Beyond had turned sour. Wedbush analysts downgraded the stock after Cohen’s decision to liquidate his stake, calling the price “out of touch” with company fundamentals.

“Bed, Bath & Beyond” is in an unenviable position as it faces steep market share losses, inventory gluts and dwindling cash reserves,” they wrote. [Bed, Bath & Beyond] manages to make progress against some of its operational targets over the next few quarters, we believe the current risk/reward ratio is disproportionately downside.”

The retailer last week secured $500 million in new funding and described another turnaround to plan this includes the closure of 150 stores, the reduction of staff by a fifth and the reduction of store brands. He’s still looking for a new CEO and CMO.

Bed, Bath & Beyond’s price has fallen 68% over the past year, closing Friday at $8.63.

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