CRIMINAL CAPITALI$M

What we know about the insider trading lawsuit filed against Bed Bath & Beyond just before the death of its CFO

sdelouya@insider.com (Samantha Delouya) - Yesterday 

Gustavo Arnal was the executive vice president and 

chief financial officer at Bed Bath & Beyond 

Bed Bath & Beyond's CFO, Gustavo Arnal, was named in an insider trading lawsuit less than 2 weeks before his death.

The suit alleges that Arnal, along with GameStop Chairman Ryan Cohen, conspired to inflate Bed Bath & Beyond's stock for a profit.

 
These types of suits are common when a company suffers big losses, according to a legal expert.


What the suit claims

Bed Bath & Beyond CFO Gustav Arnal was named in an insider trading lawsuit less than two weeks before he was found dead in an apparent suicide on Friday. The proposed class action lawsuit, filed on behalf of an individual investor Pengcheng Si, names Bed Bath & Beyond, Arnal, Ryan Cohen, and JPMorgan Securities as defendants.

The lawsuit alleges that Arnal, along with activist investor and GameStop Chairman Ryan Cohen, conspired to "artificially inflate" the price of Bed Bath & Beyond's stock and take advantage of the higher price by "illegally engaging in insider trading" from late March to mid-August.

Si personally lost more than $100,000 due to Arnal and Cohen's scheme, and thousands of other investors were also affected, according to the lawsuit.

The lawsuit seeks to hold Arnal, Cohen, and the other plaintiffs responsible for paying back investors like Si.

These kinds of suits aren't uncommon

It's estimated that more than 10,000 class action lawsuits are filed each year, according to a 2020 report from the law firm Weil, Gotshal & Manges LLP. Legal experts sometimes criticize these types of lawsuits for placing pressure on defendants to settle even weak claims, the report says.

"Any regular-world company that suffers big losses may be likely to attract the attention of plaintiff's lawyers," said Jason Gottlieb, a partner at Morrison Cohen.

The lawsuit doesn't contain specific evidence of Arnal's involvement in a Bed Bath & Beyond insider trading scheme, though it alleges that there was "heavy communication" about the plan between Arnal, Cohen, and JPMorgan.

"That's not the way you typically see it," said Alex Moreno, a partner at Sheppard Mullin, about the absence of evidence shown in the filing.

He said legal filings of this kind are generally required to show evidence that the accused had a "guilty mind" or an "intent to defraud."

Though the lawsuit claims that Arnal conspired with Cohen to "pump and dump" Bed Bath & Beyond's stock in mid-August, The Wall Street Journal reports that Arnal's stock was automatically sold under a prearranged plan set up in April with securities regulators.

Moreno says a prearranged plan to sell shares is not a "100% bulletproof" cover against insider trading, but it could help Arnal's defense.

Bed Bath & Beyond did not respond to a request for comment by Insider, but in a recent filing, the company said it was "in the early stages of evaluating the complaint, but based on current knowledge the Company believes the claims are without merit."

What happens next?

This case is not guaranteed to go to trial.

Moreno says that the lawyers for Arnal, Cohen and the other defendants will likely file a motion to dismiss this lawsuit.

"They'll say this complaint does not have specific facts showing the false statements, why they're false, and why the person who made those statements made with an intent to deceive," he said.

If the motion fails, then a judge would need to "certify the class" part of the class action lawsuit. That means that a judge would need to approve that Pengcheng Si's experience is representative of thousands of investors' experiences.

"If a class gets certified, that typically creates a lot of pressure on the defendant to try to settle the case," Moreno said.