By Jonathan Stempel
NEW YORK (Reuters) - The billionaire activist investor Ryan Cohen won the dismissal on Tuesday of a shareholder lawsuit accusing him of profitably cashing out of Bed Bath & Beyond shares too quickly as the home goods retailer was hurtling toward bankruptcy.
U.S. District Judge Dale Ho in Manhattan said two former Bed Bath & Beyond shareholders could not force Cohen to return profits from selling his estimated 11% stake because the retailer's subsequent bankruptcy mooted their claims.
The shareholders sued Cohen under a federal law requiring corporate insiders including large shareholders to give up "short-swing" profits from buying and selling a company's stock in a six-month period, with sums being returned to the company.
Cohen founded online pet supplies retailer Chewy and is now chief executive of video game retailer GameStop (NYSE:GME).
He became known as "meme king" to ordinary investors who drove the early 2021 meme stock craze, typically in online forums. Forbes magazine estimates his fortune at $4.2 billion.
Lee Squitieri, a lawyer for the shareholders, declined immediate comment, saying he was reviewing the decision. Cohen, through his lawyer Dave Wollmuth, declined to comment.
Cohen revealed a 9.8% stake in Bed Bath & Beyond in March 2022 and pushed for changes that would include new directors and exploring a sale of the Buy Buy Baby brand.
He angered other shareholders by abruptly selling his stake, whose percentage had grown because of stock buybacks, five months later for an estimated $60 million profit.
Bed Bath filed for bankruptcy in April 2023, and its common shares were canceled when its Chapter 11 plan became effective in September.
Ho said the plaintiff shareholders, Todd Augenbaum and Judith Cohen, had standing to sue when the lawsuit began in October 2022, but that was no longer true.
He rejected arguments that they still had a financial stake because they had bought stock in a Bed Bath & Beyond creditor, could have collected incentive awards or attorney's fees, and deserved reimbursement for their canceled stock.
The case is In re Bed Bath & Beyond Inc (OTC:BBBYQ) Section 16(b) Litigation, U.S. District Court, Southern District of New York, No. 22-09327.