Compass Lexecon Client Ryan Cohen Defeats Class Certification in Multibillion-Dollar Securities Fraud Suit Involving Bed Bath & Beyond

This case involved a securities class action on behalf of purchasers of Bed Bath & Beyond stock and call options (Plaintiffs). Plaintiffs claimed that Mr. Cohen, an investor in Bed Bath & Beyond (BBBY) engaged in a “pump and dump” scheme to manipulate BBBY’s stock and option prices for the alleged purpose of inflating the prices of his holdings before his planned sale, which would enable him to earn massive profits. The alleged manipulation consisted of a tweet by Mr. Cohen that Plaintiffs claimed indicated optimism about BBBY’s prospects and a securities filing that failed to disclose Mr. Cohen’s alleged plans to sell.

After Mr. Cohen’s motion to dismiss was denied, Plaintiffs filed a motion requesting that the court certify the class. The motion was accompanied by a report from the Plaintiffs’ expert who conducted an analysis of the Cammer and Krogman factors, which he claimed demonstrated that BBBY stock and options traded in an efficient market during the Class Period. Plaintiffs’ expert later conducted an event study that purported to demonstrate the price impact of the alleged manipulative acts.

Mr. Cohen’s counsel, Williams & Connolly LLP, then retained Compass Lexecon and its Chairman, Professor Daniel R. Fischel, to analyze market efficiency and other economic evidence relevant to class certification. Professor Fischel filed an expert report and provided testimony at a deposition and an evidentiary hearing in which he opined that Plaintiffs’ expert ignored the substantial increases in BBBY’s stock price, volume, and stock price volatility that started before Mr. Cohen’s alleged misstatements and continued throughout the Class Period were not caused by value-relevant information. Instead, Professor Fischel demonstrated that the price, volume, and volatility movements leading up to and continuing during the Class Period were better explained as a “short squeeze” as recognized by contemporary market analysts. As a result, Professor Fischel concluded that the BBBY securities did not trade in an efficient market during the Class Period. Professor Fischel further demonstrated that Plaintiffs’ expert also erred by failing to recognize that when event study models are performed correctly by controlling for the change in volatility, there is no basis to conclude that the alleged disclosure defects had any price impact.

On September 27, 2024, Judge Trevor N. McFadden of the US District Court for the District of Columbia ruled in favor of Mr. Cohen and denied Plaintiffs’ motion for class certification. Judge McFadden relied heavily on the opinions of Professor Fischel and agreed with his analysis and testimony “that, just before and during the Class Period, BBBY stock was undergoing a ‘short squeeze,’ which so distorted the stock’s price that it no longer efficiently reflected ‘value-relevant’ information.” Judge McFadden also found that Professor Fischel’s event studies “provide further evidence that Cohen’s alleged misstatements did not have a statistically significant price impact.”

Professor Fischel was supported by a team led by Michael Keable, Ralph Scholten, and Alex Rinaudo that included Peter Clayburgh, Anne Marie Yale, May Huang, Shawn Chen, Jim Libby, Julian Alderson, Chris Inkiow, Aidan Levi-Minzi, Sam Dages, and Sandra Mauro.

Compass Lexecon worked with Steven Farina, Dane Butswinkas, Brian Gilmore, and Madeline Prebil of Williams & Connelly LLP who successfully represented Mr. Cohen.