Bankrupt retailer Bed Bath & Beyond is suing Hudson Bay Capital Management – the hedge fund at the centre of a filed last-ditch rescue plan for the business – for more than $300m in lost trading profits as it looks to generate cash for its creditors, according to a report by Fortune.
In a lawsuit filed last week under the so-called short-swing profit rule, which governs transactions by executives in their company’s stock, Bed Bath claims that Hudson Bay orchestrated the terms of a February 2023 offering so it could acquire a large, cut-rate stake in the business without having to disclose the ownership.
Under the terms of the rule, which is designed to prevent executives from profiting on inside information and also applies to outside investors with an equity stake of more than 10%, the company is entitled to any profits from short-term trading, such as a purchase and matching sale inside of six months.
According to the lawsuit, Hudson Bay was able to acquire almost all of Bed Bath’s convertible preferred shares and warrants issued through the sale, which then allowed it to acquire hundreds of millions of deeply discounted shares which it traded to generate a profit.
At the time, Bed Bath was battling to stave off bankruptcy and the law suit alleges that Hudson Bay’s backing was aimed at making a profit from the home-goods company’s popularity as a so-called meme stock.
In the complaint, Bed Bath said: “When all was said and done in April 2023, BBBY was bankrupt, while the Hudson Bay defendants had reaped a short-swing profit of over $300m.”
In a statement, Hudson Bay, which managed about $20bn at year-end, has responded by saying that Bed Bath creditors were behind the lawsuit, and that the hedge fund never owned more than 10% of the retailer’s shares.
