The unexpected death of Bed, Bath & Beyond’s former chief financial officer amid fraud allegations against him raises more questions about the struggling retailer and highlights its shaky finances.
Bed, Bath & Beyond’s stock price plummeted on Tuesday, falling 15% to $7.18 a share by mid-morning. Over the past year, the retailer’s stock has lost more than 70% of its value.
The company’s chief financial officer, 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 death comes as the once popular retailer, whose sales have fallen since last year, struggles to turn itself around. Arnal is also named as a defendant in a securities lawsuit that accuses him, his employer and billionaire entrepreneur Ryan Cohen of a dumping scheme to inflate Bed, Bath & Beyond stock.
The company did not respond to a request for comment from CBS MoneyWatch; GameSpot, where Cohen is president, also did not respond to a request for comment.
On Tuesday, Bed Bath & Beyond named Laura Crossen interim CFO. On its website, the company called Arnal’s death a “shocking loss”.
“Gustavo will be remembered by all with whom he worked for his leadership, talent and stewardship of our company. I am proud to have been his colleague, and he will be truly missed by all of us at Bed Bath & Beyond and everyone who had the pleasure of meeting him,” Harriet Edelman, the company’s president, said in a statement.
A stock crash, then a lawsuit
Shares of Bed, Bath & Beyond have been on a roller coaster ride, rising during the The “meme stock” frenzy of 2020 before fading last year. The stock rose again in March when Cohen, the founder of online pet products company Chewy.com, disclosed a nearly 10% stake in the company.
Cohen is credited with engineering a turnaround at GameStop, and some retail investors saw his ownership as a positive sign for Bed, Bath & Beyond. To kick-start the home goods company’s recovery, he quickly helped oust Bed, Bath & Beyond’s CEO and chief marketing officer and appointed two new directors.
Cohen filed further with the Securities and Exchange Commission on August 16, re-stating his ownership of Bed, Bath & Beyond. This brought the stock to increase once again. But that same day, Cohen immediately began selling his stake, sparking a selloff that sent the company’s stock down to a third of its original price within a week.
This led some to call for an investigation by the SEC, and on August 23 a shareholder lawsuit was filed in Washington, DC district court, alleging securities fraud.
The lawsuit, which seeks class action status, states
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that Cohen, Arnal, JPMorgan and others “engaged in a fraudulent scheme to artificially inflate the price of BBBY’s publicly traded stock” and “blatantly misrepresented BBBY’s value and profitability” to lure retail investors to buy shares
According to the lawsuit, Cohen and Arnal cooked up a scheme whereby Cohen would publicly extol the company’s stock while Arnal would limit sales of the stock by insiders, driving up its price. The complaint also claims that Cohen lied when he restated his ownership of the company and claimed that he had begun selling his shares at that time.
Arnal also sold 55,000 shares of Bed, Bath & Beyond on Aug. 16, though his disclosure indicates the sale plan began in April.
Cohen and Arnal “engaged in illegal insider trading and fraudulent SEC reporting,” the lawsuit alleges. It also alleges that the two “took advantage of the inflated stock price and used fraudulent and misleading filings with the SEC to sell all of BBBY’s stock and options at artificially inflated prices to unsuspecting and innocent public investors and then kept profit control”.
Bed, Bath & Beyond told investors in an Aug. 31 securities filing that “The company is in the early stages of evaluating the complaint, but based on current knowledge, the company believes the claims are not they have merit.”
Empty leadership
Even before the shareholder suit, Wall Street’s view 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 the company’s fundamentals.
Bed, Bath & Beyond “is in an unenviable position as it faces steep losses in market share, an overabundance of inventory and dwindling cash reserves,” they wrote. [Bed, Bath & Beyond] manages to make progress on some of its operational targets in the coming quarters, we see the current risk/reward is disproportionately to the downside.”
The retailer last week secured $500 million in new funding and outlined another turnaround plan that includes closing 150 stores, cutting a fifth of staff and scaling back store brands. It is still looking for a new CEO and marketing director.
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