Late Bed Bath & Beyond CFO Dropped From Shareholder Suit

Plaintiff’s lawyer says going after Gustavo Arnal’s estate in meme-stock case would have been ‘messy and just not economical’

Bed Bath & Beyond has said the lawsuit was without merit.

Photo: Nam Y. Huh/Associated Press

Bed Bath and Beyond Inc.’s late finance chief Gustavo Arnal, who died by suicide in September, has been dropped from a shareholder lawsuit that had accused him of colluding with activist investor Ryan Cohen to artificially inflate the struggling home-goods retailer’s share price.

Going after Mr. Arnal’s estate “would have been complicated, messy and just not economical,” said Steven Toll, a managing partner at law firm Cohen Milstein Sellers & Toll PLLC and counsel for Pengcheng Si, who filed the suit. “There’s plenty of grief in his family, and us making it even worse didn’t seem worth it,” Mr. Toll said.

In an amended 100-page complaint filed Tuesday, Mr. Arnal is no longer listed as a defendant. Gone are claims from the original 24-page complaint that Mr. Arnal and Mr. Cohen colluded to boost the company’s share price. The original filing didn’t provide evidence for such conversations between the two men. Bed Bath & Beyond has said the lawsuit was without merit.

Mr. Arnal, 52, died by suicide in early September amid a mounting financial crisis at the retailer and shortly after he was accused in the original complaint of having sold Bed Bath & Beyond shares while in possession of material insider information. He sold about $1.4 million worth of stock in mid-August under a prearranged trading plan, filings show.

Bed Bath & Beyond and Mr. Cohen, along with JP Morgan Securities LLC, are still named as defendants in the suit, which seeks class-action status. The amended filing alleges that Mr. Cohen “orchestrated a market manipulation” by deceiving retail investors that he would hold on to his investment, boosting Bed Bath & Beyond’s stock price and then “secretly” selling his holdings in the company.

Bed Bath & Beyond and Mr. Si declined to comment. Mr. Cohen didn’t immediately respond Wednesday to a request for comment. Mr. Cohen has previously declined to comment. Mr. Arnal didn’t respond to the suit before his death.

Gustavo Arnal, late chief financial officer of Bed Bath & Beyond, who died in September.

Photo: Bed Bath & Beyond Inc.

Records show that Messrs. Cohen and Arnal had no direct communications and interacted only on conference calls that included other executives, people familiar with the matter previously told The Wall Street Journal.

Mr. Cohen, the co-founder of online retailer Chewy Inc., in March unveiled a stake in Bed Bath & Beyond and called on its management to consider strategic alternatives. Bed Bath & Beyond then added new members to its board and in June said Chief Executive Mark Tritton would leave. Mr. Cohen unloaded his entire stake in Bed Bath & Beyond in mid-August.

Bed Bath & Beyond shares traded around $4.05 on Wednesday, down more than 70% since the beginning of the year.

The amended complaint adds details based on publicly available information, for example Mr. Cohen’s takeover of videogame retailer GameStop Corp. The discovery process however, which is the early-stage part of litigation when both sides gather evidence through depositions, hasn’t started yet, Mr. Toll said, adding that nothing has been learned about collusion alleged in the original complaint between Mr. Cohen and Mr. Arnal.

Mr. Toll said he hadn’t heard from Bed Bath & Beyond or Mr. Arnal’s estate leading up to the filing of the amended complaint. This was expected given that the defendants haven’t yet been served with the lawsuit, which is among the next steps in the case, Mr. Toll said.

There is a deadline approaching on Nov. 7 for investors to claim that they should lead the case. A lead plaintiff could be appointed by the end of the year or early next year, Mr. Toll said. U.S. District Judge Trevor McFadden on Wednesday asked that the amended complaint be refiled to highlight changes from the initial version. Mr. Toll said he hopes to do so in the next day or two.

In the weeks leading up to his death, Mr. Arnal was inundated with emails from investors and plaintiffs’ lawyers asking about the August sale of some of his company holdings, The Wall Street Journal reported in September. He told colleagues he was stressed about the attention toward his stock sale and pointed out that it was preplanned, the Journal reported.

The company last week named Sue Gove as its permanent chief executive officer. Ms. Gove, who had been on Bed Bath & Beyond’s board, became interim chief executive at the end of June. The retailer in early September named Laura Crossen as interim CFO.

Write to Jennifer Williams-Alvarez at jennifer.williams-alvarez@nzm7.com

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Appeared in the November 3, 2022, print edition as 'Late Bed Bath CFO Is Dropped From Lawsuit.'