A U.S. judge has ruled that former Bed Bath & Beyond investor Ryan Cohen can be sued by investors over a tweet he posted featuring an emoji that seemed to indicate an endorsement of the home goods retailer before it declared bankruptcy earlier this year.
The decision, issued Thursday by District Judge Trevor McFadden of Washington, D.C., concluded that Cohen and his company must face plaintiffs’ fraud claims, including their allegation that Cohen’s smiley moon emoji was a fraudulent misrepresentation.
In 2022, Cohen took a big stake in the tottering home goods giant, prodding the company to install three allies as board members and publicly floating his ideas for revitalizing the business.
Cohen’s hundreds of thousands of social media followers took note, turning Bed Bath & Beyond into a hot topic on social media forums for investors.
On August 12, 2022, Cohen posted a tweet responding to a CNBC story predicting that Bed Bath & Beyond’s share price would drop to $1. The CNBC story was accompanied by a photo of a woman shopping at a Bed Bath store. Cohen reposted the CNBC story with a quip — “at least her cart is full” — and an emoji of a smiling moon.
Cohen’s tweet, posted on a Friday, reverberated across Reddit and Twitter that day and over the following weekend.
In posts and tweets responding to Cohen’s message, many investors said they interpreted his use of the smiley moon emoji as a signal that he still believed Bed Bath & Beyond shares were "headed to the moon."
That phrase has become a common idiom among so-called meme-stock investors indicating that the stock is poised to soar, McFadden said.
“So meme stock investors conceivably understood Cohen’s tweet to mean that Cohen was confident in Bed Bath and that he was encouraging them to act,” he wrote.
Buoyed by heavy volume, Bed Bath & Beyond shares rose from $10.63 on the Friday morning before Cohen’s tweet to $16 at the close of trading on Monday.
The share price continued to skyrocket after Cohen filed a document at the U.S. Securities and Exchange Commission on Monday night, formally disclosing his stake in the company. The filing made no mention of plans to sell. Bed Bath & Beyond’s share price topped out the following day at nearly $30 in trading so frenzied that it was halted several times due to volatility.
Over the next two days, Cohen quietly exited his position, which reportedly netted him $68 million.
When Cohen revealed he had sold all his shares in the company, Bed Bath & Beyond’s stock price plummeted. By August 22, shares were trading below $10. The company ultimately filed for bankruptcy the following April.
By January, investors had filed a securities fraud class action alleging they’d been duped by Cohen and his company, RC Ventures.
Among their claims: Cohen posted the smiley moon emoji because he knew his followers would read it as a sign of his confidence in the company, even though his true intention, according to the shareholders’ complaint, was to drive up the share price before he ditched his stake.
Neither Cohen, his company RC Ventures not his attorneys immediately responded to requests for comment from NBC News and Reuters.
Lead plaintiffs lawyers Omar Jafri and Jeremy Lieberman of Pomerantz did not respond to a Reuters query.
McFadden appears to be the second judge to hold that emojis have particular meaning to investors. U.S. District Judge Victor Marrero of Manhattan ruled last February in Friel v. Dapper Labs, Inc., that when a seller of non-fungible tokens posted a tweet with emojis of a rocket ship and money bags, the emojis signified a promise of profitability.
Cohen’s lawyers from Vinson & Elkins downplayed that case in their motion to dismiss the Bed Bath class action. They argued that it was unreasonable to infer a promise of profitability from the moon emoji in Cohen’s tweet, considering that Cohen reposted the CNBC article predicting a crash in Bed Bath & Beyond’s share price.
At worst, Cohen argued, the emoji was immaterial puffery.
“It is not plausible that an investor would have made an investment decision based on Mr. Cohen’s obscure tweet at a time when BBBY’s public financials showed the company’s sales declining precipitously, its losses skyrocketing and its cash dwindling,” Cohen’s lawyers argued.
Shareholders must show an alleged misrepresentation was false, Cohen’s brief asserted, but “there is no way to establish objectively the truth or falsity of a tiny lunar cartoon.”
McFadden, however, said the emoji was neither puffery nor immaterial to Cohen’s followers, who reasonably saw him as “as an insider sympathetic to the little guy’s cause.”
It was “not crazy,” the judge said, for the meme stock investors to read Cohen’s smiley-moon emoji as expert guidance to stick with Bed Bath & Beyond despite troubling reports on the company’s health.
“A fraudster may not escape liability simply because he used an emoji,” the judge said.
A follow-up hearing date was not immediately available.