Twenty-year-old Jake Freeman amassed a big stake in Bed Bath & Beyond before the share price soared
Author of the article:
Financial Times
Antoine Gara and Madison Darbyshire in New York
Publishing date:
Aug 18, 2022 • 12 hours ago • 3 minute read • 8 Comments
A Bed Bath & Beyond Inc. Inc. store stands in Fort Lauderdale, Florida. Photo by Luke Sharrett/Bloomberg A 20-year-old university student has made a roughly US$110-million gain 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.
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Jake Freeman, an applied mathematics and economics major at the University of Southern California, acquired nearly five million shares in Bed Bath & Beyond Inc. in July, according to regulatory filings, after dismal earnings and the ousting of its chief executive sent its stock price plummeting.
Freeman bought his stake at under US$5.50 a share. On Tuesday, Bed Bath & Beyond surged to more than US$27 a share. As the stock soared, Freeman sold more than US$130-million worth of stock from his TD Ameritrade and Interactive Brokers accounts.
“I certainly did not expect such a vicious rally upwards,” Freeman said in an interview on Wednesday. “I thought this was going to be a six-months-plus play…I was really shocked that it went up so fast.”
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After selling the shares, Freeman went for dinner with his parents in the suburb of New York City where they live and on Wednesday he flew to Los Angeles to return to campus, he said.
I certainly did not expect such a vicious rally upwards
Jake Freeman
Freeman’s initial stake cost about US$25 million, which he said was mostly raised from friends and family. He has invested for years with his uncle, Dr. Scott Freeman, a former pharmaceutical executive. The two recently built an activist stake in a publicly traded pharmaceutical company called Mind Medicine.
Freeman also said he had interned for years at a New Jersey hedge fund, Volaris Capital. Just before his 17th birthday, Freeman and its founder, Vivek Kapoor, a former Credit Suisse Group AG executive, published a paper titled “Irreducible Risks of Hedging a Bond with a Default Swap.”
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Freeman amassed his more than six-per-cent position in Bed Bath & Beyond via Freeman Capital Management, a fund registered in the cowboy town of Sheridan, Wyoming, according to the filings.
Upon disclosing his position in July, Freeman sent an uncompromising message to the retailer’s board. The company, he said, was “facing an existential crisis for its survival.” It needed “to cut its cash-burn rate, drastically improve its capital structure, and raise cash,” he added.
Shares of the New Jersey-based chain — known for operating cavernous stores full of vacuums, towels and kitchen gadgets — have risen fivefold over the past month even after the grim earnings report on June 29.
It reported sales had plunged 25 per cent in the second quarter compared with the same period of 2021, while its net loss widened to US$358 million from US$51 million. Its cash position had dwindled to US$107 million from US$1 billion at the start of the year.
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Bed Bath & Beyond is one of a handful of meme stocks that became popular at the start of 2021 but has garnered less attention than GameStop, the video game retailer, and AMC, the cinema chain.
More On This Topic The SPAC king goes silent with his empire shrivelling Meme and thematic ETFs surge as inflation fears dip Generation moonshot: why young investors are not ready to give up on risk Mom-and-pop investors lost over $1 billion during COVID-19 pandemic The increase in its share price has been driven by interest from retail investors attracted by the stock’s small free float and a significant number of short sellers betting the share price will fall.
Those two characteristics tend to draw interest from retail investors frequenting Reddit forums. It means they can try to engineer a “short squeeze” by driving the share price higher and forcing professional investors to unwind their bearish positions, which only propels the stock even higher.
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Article content Freeman’s sale was well-timed. Shares of Bed Bath & Beyond fell 17 per cent in after-hours trading on Wednesday after Ryan Cohen, GameStop’s chair and a large shareholder of the homeware retailer, disclosed he was planning to sell his entire stake of almost 12 per cent in the company.
It was a separate disclosure on Monday from Cohen, co-founder of pet food retailer Chewy and a meme-stock champion, that sent the stock on a tear on Tuesday. He disclosed he had purchased a large number of call options in Bed Bath & Beyond — derivatives that can deliver a windfall if a stock rises in value.
Cohen did not respond to a request for comment.
© 2022 The Financial Times Ltd.
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