October 4, 2022

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College student earns $110 million in shares of Bed Bath & Beyond

College student earns $110 million in shares of Bed Bath & Beyond

A 20-year-old college student made nearly $110 million in gains by selling a stake in struggling retailer Bed Bath & Beyond, after its stock price soared during a month of frenzied trading reminiscent of last year’s meme stock boom.

Jake Freeman, a specialist in applied mathematics and economics at the University of Southern California, acquired nearly 5 million shares in Bed Bath & Beyond in July, according to regulatory filings, after bad profits The dismissal of its CEO led to a drop in its share price.

Freeman bought his stake for less than $5.50 a share. Tuesday, bed bath behind It rose to more than $27 a share. With the stock soaring, Freeman sold more than $130 million worth of stock from his accounts at TD Ameritrade and Interactive Brokers.

Freeman’s sale was just in time. Shares in Bed Bath & Beyond plunged more than 20 percent Thursday after investor and meme stock champion Ryan Cohen revealed on Wednesday Evening that he intends to sell his entire 12% stake in the company.

“I certainly wasn’t expecting such a sinister rise,” Freeman said in an interview on Wednesday. “I thought this was going to be a six month plus play… I was really shocked because it went up so fast.”

After selling the shares, Freeman went to dinner with his parents in the New York City suburb where they live, and on Wednesday flew to Los Angeles to get back on campus, he said.

Jake Freeman: “I was really shocked that it went up so fast” © Jake Freeman

Freeman’s initial stake cost about $25 million, which he said was mostly raised from friends and family. He invested for years with his uncle, Dr. Scott Freeman, a former pharmaceutical director. The two recently built an active stake in a generic pharmaceutical company called Mind Medicine.

Freeman also said he trained for years at a New Jersey hedge fund, Volaris Capital. Just before his 17th birthday, Freeman and his founder, Vivek Kapoor, a former CEO of Credit Suisse, published a paper titled “Irreducible risks of hedging a bond with a default swap.”

Freeman acquired more than 6 percent of his position at Bed Bath & Beyond via Freeman Capital Management, a fund registered in the cowboy town of Sheridan, Wyoming, according to filings.

Upon revealing his position in July, Freeman sent relentlessly message to the retailer’s board of directors. He said the company “is facing an existential crisis for its very survival.” He added that they need to “reduce the liquidity burn rate, radically improve the capital structure, and increase liquidity.”

Shares of the New Jersey-based chain — known for operating cavernous stores filled with brooms, towels and kitchen utensils — surged fivefold over the past month even after a poor earnings report on June 29.

It reported that sales fell 25 percent in the second quarter compared to the same period in 2021, while its net loss widened to $358 million from $51 million. Its cash position has dwindled to $107 million from $1 billion at the start of the year.

Bed Bath & Beyond is one of the few meme stocks that became popular at the start of 2021 but has received less attention from GameStop, the video game retailer headed by Cohen, and AMC, the cinema chain.

The increase in its share price was prompted by the interest of retail investors who were attracted by the small free-floating stock and a large number of short sellers betting on the drop in the share price.

These two traits tend to attract the interest of retail investors who frequent the Reddit forums. This means that they can try to engineer a “short squeeze” by driving the stock price higher and forcing professional investors to unwind their bearish positions, which pushes the stock higher.

It was a separate disclosure Monday from Cohen, who is also the co-founder of pet food retailer Chewy, that caused the stock to crash on Tuesday. He revealed that he had bought a large number of call options in Bed Bath & Beyond – derivatives that could generate windfall if the stock rises in value.

Cohen did not respond to a request for comment.

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