Billionaire and Chewy co-founder Ryan Cohen is being investigated by federal regulators for his sudden sale of Bed Bath & Beyond during the height of 2022’s meme stock craze, The Wall Street Journal reported Thursday, citing unnamed sources familiar with the matter.
Cohen bought a $121 million stake in Bed Bath & Beyond in the first quarter of 2022 through his investment firm RC Ventures, but then abruptly sold his holdings just five months later after Bed Bath & Beyond soared in a meme stock rally, netting him a profit of over $60 million.
Cohen used his roughly 10% stake in the ailing retailer to push for changes during the brief period he was involved with the company. He was able to get three new board members appointed, and said he hoped to modernize Bed Bath & Beyond’s supply chain and ensure it had better product mix to attract customers while floating the idea of a potential sale, according to a letter RC Ventures sent to Bed Bath & Beyond’s board that was published by the Wall Street Journal.
The Journal did not list a specific focus of the Securities and Exchange Commission investigation. Cohen did not immediately respond to Fortune’s request for comment.
Cohen drew in thousands of retail investors to Bed Bath & Beyond after buying his shares. The billionaire became one of the leaders of the meme stock mania in 2021 after taking control of ailing video game retailer and social media favorite GameStop, where he remains chairman today. Retail traders on Reddit’s Wall Street Bets forum and other social media sites looked for stocks that were highly shorted by investors in 2021 and 2022, calling them meme stocks. Their goal was to spark a short squeeze by buying into the company en masse that would drive share prices higher after forcing short sellers to exit their bearish bets. And it often worked, if only temporarily.
But at Bed Bath & Beyond, many retail investors were left with huge losses after Cohen sold his stake in the company. In the few days in which Cohen sold his Bed Bath & Beyond shares in mid-August of last year, for example, retail investors bought a record $131 million worth of the stock, Bloomberg reported, citing data from Vanda Research. Then, after Cohen revealed he had sold his stake, Bed Bath & Beyond stock tanked 52% in just two days.
Bed Bath & Beyond continued to struggle until April 2023, when years of weak sales and significant losses forced management to file for Chapter 11 bankruptcy.
The company, which at its peak in 2017 boasted a market cap in excess of $17 billion, was eventually sold for just $21.5 million to Overstock.com. And on July 30, it closed its remaining 360 stores, as well as 120 Buy Buy Baby locations that Cohen lauded as a growth opportunity for the firm in 2022.
The billionaire was sued by Bed Bath & Beyond investors who claimed his public statements prior to his sales—including a tweet that included a smiling moon emoji in reference to a negative article about the company—amounted to a pump-and-dump scheme that left retail traders in the dust.
In July proceedings over the lawsuit, Washington D.C. district judge Trevor McFadden said that meme stock investors may have “understood Cohen’s tweet to mean that Cohen was confident in Bed Bath and that he was encouraging them to act.”
Cohen has denied the claims, saying he simply sold the shares because they appreciated more than he had expected and became overvalued, but Judge McFadden refused to throw out the case in July, calling the billionaire’s trades “sketchy.”
“A fraudster may not escape liability simply because he used an emoji,” he added.