CNBC SPECIAL: Making of the Meme King Part 2

0:02Ryan Cohen has emerged as a pretty interesting figure as well never talked I did not know Ryan Ryan Cohen was before GameStop. They're people who made fortunes thanks to him. What do you think that Ryan Cohen is doing? I have no idea. I'm Mary Hannon, a CNBC Documentaries senior producer, and this is Making of the Mean King, a special CNBC podcast.

0:30Ryan Cohen is a man of mystery. I've never met him. I don't believe I've ever even heard him speak. He's a contrarian, independent thinking, independent minded leader. Somebody without a college degree can become the chairman of a public company of the scale of GameStop. Came upon newfound fame by being the meme stock king, by being the Pied Piper of Wall Street. He's accumulated fans in almost like a cult-like following. Ryan Cohen's stake in Bed Bath & Beyond, he's now cashed out of his entire position. Bed Bath & Beyond shares cratering 40%. Should you expect the SEC to get involved? Every story needs a hero or a villain.

1:08Ryan very much filled that role. Seems like Ryan Cohen is kind of using people to make money.

1:20Part two, a billionaire's next act. We begin in April 2023 as Bed Bath & Beyond files for bankruptcy. We turn now to the end of an era. another popular retailer going out of business, Bed Bath & Beyond. Closing sales will kick off today. That's going to impact more than 300 stores. This is a good store. We're all going to miss it. My name is Melissa Lee. I am a host and reporter at CNBC. Everybody knows Bed Bath & Beyond. It's the company that sends you a 20 % off coupon every month. It sells everything from bedsheets, pots and pans, blenders, hence the name Bed Bath & Beyond. The story of Bed Bath & Beyond is very much the story of American retailers.

2:06My name is Lauren Hirsch and I'm a reporter for The New York Times. It got big, big, big, big, big. And then all of a sudden e-commerce came and changed the game entirely. And it couldn't pivot or respond fast enough. But even before the bankruptcy layoffs and store closings, Bed Bath & Beyond had been on a roller coaster run as a meme stock. Let's turn back the calendar to March of 2022, as the company heads towards another big upswing. You got to watch what's happening. I don't even know how to describe it. Shares of Bed Bath and Beyond are up 74 percent. To infinity and beyond. Bed Bath shares soaring as a big name takes the stake.

2:45My name is Sue Guan. I am the Albert J. Rufo Assistant Professor of Law at Santa Clara University School of Law. In March of 2022, I believe Ryan Cohen disclosed a substantial stake in Bed Bath & Beyond. When it happened, I thought, here Ryan goes again. That's investor Larry Chang, one of Ryan Cohen's longtime business associates. He's picking the most challenged retail companies and seeking to create change. He's calling for Bed Bath & Beyond to update its turnaround plan and explore a sale or spinoff of its bye-bye baby business. It was this notion that Ryan Cohn was going to go back into another company and try to turn it around.

3:27That this guy with the magic touch, this guy who had legions of retail investors following his every move would go in, that really ignited the stock. They bought into the belief that this was going to skyrocket and they'll become rich. Reddit user Arfon was tracking what was happening. He doesn't want to reveal his last name for fear of retribution from the online community. What they see is the struggle against corporate America and hedge funds. And they see him as the sort of good, good billionaire compared to what the bad billionaires are. When he went into Bed Bath, it was like, OK, Ryan Cohen is an activist investor.

4:02So he launched a fight to get people on the board and he took aim at the CEO, who did ultimately step down. Bed Bath & Beyond has reached a settlement with investor Ryan Cohen. Three new directors will be appointed to Bed Bath's board. And he pushed for changes. The problem is the business itself at Bed Bath was just struggling. While at GameStop, I think Ryan found himself a little bit more time in kind of committing with a turnaround plan. He didn't have that luxury at Bed Bath. Bed Bath and beyond getting hammered after the retailer posted a big, unexpected quarterly loss. Ryan would say Bed Bath was worse than he realized.

4:41Critics of Ryan would say he should have done more math before he went in. So I think, you know, choose what side you want to be on. But it was very, very challenging. So in August of 2022, that's when the story gets really, really interesting. Ryan Nebel, one of Ryan Cohen's lawyers. The stock was extremely volatile. And for some reason, it went down and back up. Brandon, an investor on Reddit who also asked to keep his last name private, used to follow Ryan's business moves. I just had a feeling that something was going to happen with it. So I bought into it at around five. Then in August, it started to climb.

5:17I also want to draw your attention to Bed Bath & Beyond. There was a filing out yesterday. Ryan made these filings in part because the share count of the company changed. Because Bed Bath & Beyond had bought back stock, Ryan's stake in the retailer went from 9.8 % to more than 10%. So in those cases, when your stake changes in a company, you have to refile to the SEC. What was interesting about this filing was that basically there was not much new information, but it did put back out there his position of these far out of the money calls. Call options are basically a bet that the stock is going to go higher to a certain price by a certain date.

5:57Traders who maybe hadn't been paying attention the first time around or didn't really know what those filings meant saw that and they got incredibly excited. And they said, oh, my God, Ryan Cohen thinks the shares of Bed Bath & Beyond are going to quadruple? So do I. And they dove in. Checkout shares of Bed Bath & Beyond rallying as much as 70%. To me, this feels like a big fugazi, as the kids say. It's real. But, yeah, exactly. No, no, no. It's not real. We were trying to figure things out in real time. You're looking through it. You're comparing it with past filings. And that's when we realized that there was not really much new information in that amended filing.

6:38It was sort of a race to just try and figure this out because we were seeing the stock run. And so we wanted to find some answers. And what we later learned a couple days later in another filing is that Ryan Cohen sold his entire stake, every share. That's not something small. We're talking over$140 million. That is a non-trivial amount of volume to get sold. I'm Dan Taylor, chaired professor of accounting at the Wharton School. A lot of my research and teaching focuses on insider trading, accounting fraud, and corporate disclosure. I was not paying attention to Bed Bath & Beyond at all until his trades came through.

7:13A trade of that size, it's only natural that that sort of raised red flags. Shares getting crushed right now, down 40%. Such a gut punch. You might recognize that voice as Redditor Arphons. But what you saw was like all these people were just left with shares that had just crashed. Ryan Cohen's investment in Bed Bath & Beyond probably lost a lot of retail traders money, but it turned out very well for him. New York Times reporter Lauren Hirsch. He walked away with around$60 million in cash in his pocket. And that's not because he turned the business around or because he brought some clear change.

7:52it's because retail traders followed him in and then he sold out. And that raised questions. Once again, Ryan's lawyer, Ryan Niebel. All I can say is that once Ryan became aware of the obligation to make the filing, he made the filing. And I think that at the time he had not decided whether he was going to increase his position or decrease his position. I think it's a good example, though. Larry Chang. If Ryan enters a situation and can't influence or make the changes that he would want, he didn't stay in it. I think people have to appreciate that that's always a possibility. So in the days after we learned that Cohen dumped his entire stake, we also learned that the company was going to go through this massive restructuring.

8:37And then it came out that some suppliers weren't getting paid. Two weeks after that, they announced horrible quarterly performance. FedBath and beyond announcing plans to lay off about one-fifth of its workforce and close about 150 stores. It made people wonder what Ryan Cohen knew about the company and what it was planning to do when he sold that stake. Did he know that the company was going to go this route? His fund basically placed three board members onto the board. It strains credulity to believe that the board members wouldn't be aware of what was going on at the firm. And so then you start to wonder, well, what's the connection between the board members and Ryan Cohen?

9:18And so not only did the trade show up on our radar screen because of the size of the trade, but also because it was made by an individual who was intimately connected with the company. The directors that were actually inside the boardroom, they're not beholden to Ryan. They're independent directors. And Ryan had no influence or control over, you know, the decisions that they would make. A source close to Ryan Cohen tells CNBC that Ryan never had any material non-public information about Bed Bath & Beyond. And adds that no company representative or authority has ever accused Ryan of having any inside information.

9:52We do have some sad news from over the weekend with Bed Bath & Beyond. So the story took a really tragic turn. News that the CFO of Bed Bath & Beyond. Police say 52-year-old Gustavo Arnal. Plunged to his death from the Jenga building. in Tribeca. His death came just days after the struggling chain announced that it was closing stores and slashing jobs. This is a guy who had been in business at Fortune 500 companies for a long time, long track record. It was an incredibly stressful time for the companies, the employees, the board, executives, everyone. And Bed Bath & Beyond Stock taking another hit.

10:30Should you expect the SEC to get involved? John Stark is the former chief of the SEC's Office of Internet Enforcement. When you're investigating an activist investor, it's typically a very challenging investigation because you are trying to prove that there is an intent to manipulate the market by that person. So you see, there's a whole laundry list of potential securities violations that can happen in the context of being an activist investor. But as far as I could tell, what happened in Bed Bath & Beyond is one day he liked the company and the next day he didn't. Santa Clara University School of Law assistant professor, Su Guan.

11:10In my opinion, Ryan Cohen likely did not do anything illegal. But do we want to live in a world where retail investors look to these social media leaders and are heavily influenced by them? Or do we want to live in a world where regulators try to protect those retail investors? But from a moral standpoint, it seems a little shady. That's Brandon again, the investor who used to follow Ryan Cohen. The problem with Ryan Cohen is that people believe in him and believe he's there to support them. And then he goes and does stuff like that. Remember, while all this is going on, Ryan is also trying to turn around GameStop, the struggling video game retailer.

11:54Ryan Cohen saw dollar signs instead of doom. The e-commerce entrepreneur sought a total transformation of GameStop and found his way into the boardroom. Who better to ask about GameStop's strategy than one of its board members, Larry Chang, who's been working with Ryan since his Chewy days. What can I tell you about where GameStop is heading? I can't tell you where GameStop is heading. It's not that I don't know, but I think that's best told by Ryan. We tried to ask Ryan, but he declined to be interviewed for this project. Still, his team did connect us with some of the people who spoke with us, like Tom Burkholder, who also worked with Ryan at Chewy and GameStop.

12:33So Ryan's plan on getting GameStop to succeed in the digital age, I'm not going to share too much about because very tight-lipped, very much like his time at Chewy, very private. It came as a surprise to many in June of 2023 that Ryan was being promoted after serving just a couple of years as GameStop's chairman. GameStop has fired CEO Matthew Furlong after just two years on the job. Board chair Ryan Cohen is now executive chair, effective immediately. Ryan Cohen and the GameStop board, they haven't offered forward guidance at an earnings call for two years now. They're not really telling anyone what's going on with it.

13:10On typical Wall Street calls, you've got the CFL coming on, talking about the results, taking questions from the analyst communities, really sort of inviting investors into the company. But here, they're operating behind a wall, not even a veil. It's more like a wall. Now ask yourself, you know, why would GameStop do an earnings call and not take questions? That's Michael Pachter, a managing director at Wedbush Securities, who covers GameStop. And the answer is because Ryan Cohen doesn't want anybody challenging him. My name is Shannon Phillips. I'm a telecommunications engineer. I was at GameStop for 17 years.

13:45When Ryan came in, whether it's trust issues or whether or not he just wanted to, you know, recreate the old good times we had with Chewy, He went out and grabbed all those employees and brought them in. Lauren Hirsch of The New York Times. He thinks that his views are right. He has his people that he trusts. But other than that, he's not going to try to appease anyone. The impression that we got was, okay, you know, if you're pre-Ryan Cohen, you're a complete idiot. If there had just been one smart person in the company, that person would have ascended to the top and would have ran the company and the stock would have never been worth$4.

14:21Turning around any company is not like flipping a switch. It's like moving a large ship that's got tremendous momentum and trying to shift it into a different direction. It takes time, and those efforts are happening. The company announcing it's leased a 530 ,000-square-foot fulfillment center in Reno, Nevada, and also leasing a customer care center. He was really aggressive about making changes to the way that the e-commerce business operates and where it operates. One of the first things that I noticed when I joined GameStop was that we were opening up new warehouses, and they were big warehouses.

14:57It was kind of taking from the same playbook that Chewy had, where the goal was to build this e-commerce distribution network. That's Tom, the longtime Chewy employee who followed Ryan to GameStop. He recently left his position there as vice president of supply chain and operations. Why are we opening up additional warehouses? We have 5.6 million square feet of store footprint for us to have our product close to customers and for them to be able to buy it in any way that they want. Well, initially Ryan's agenda was to get rid of a lot of the bricks and mortar store, streamline the company, make an e-commerce first company.

15:38And I think he tried to do that. Along the way, he tried a lot of sort of out of the box things. The NFT marketplace idea, I don't think that GameStop has any competitive advantage in that. Zero. Once again, Michael Pachter. I don't think he has any ideas that are fresh and new and different that will allow GameStop to thrive. I'm Paul Evans. I served one year on the board at GameStop. I think the passage of time will see who's right. The critic who probably hasn't put up their own money is not an investor in GameStop. It's just that, just a critic. You know, it's so much harder to be an author, and that's what Ryan is.

16:18I think if Ryan's goal was to make this an e-commerce company, the plan didn't work. It's today still primarily a bricks-and-mortar company. It's not much different from the company he originally inherited, minus the fact that, you know, all the management changed and the board changed. My name's Mark Robinson. I'm the general counsel and corporate secretary of GameStop. I think the results speak for themselves, honestly. Like, we just had our first profitable quarter in some time. He's talking about the fourth quarter of 2022. GameStop shares are soaring. The company reported a quarterly profit for the first time in two years.

16:58We have a ton of cash on the balance sheet. I think the board is working well. It cut costs. It shut stores. It became profitable that way. Revenues went down. So their sales were down. So, yes, it was profitable, but how it gets to profitability is very important, too. But by June 2023, when Ryan was named executive chairman and CEO Matt Furlong was fired, the quarterly report was not as positive. The retailer did report a quarterly revenue decline and a narrower loss. Jim, we now have a cryptic tweet from Cohen, of course, yesterday. Not for long. I think Ryan's biggest doubters absolutely question whether or not he is a one-hit wonder, and that will be the big question for Ryan, whether or not he can identify himself as a real investor with a clear vision how to run and turn around a company.

17:56I don't think he's a one-hit wonder. I don't think he's failed in any way. I think he's just taking risks. What is Wall Street buzzing about? Ryan Cohen's latest target. Ryan's popularity, you know, particularly with retail investors, it's created some strange phenomena, you know, that we don't see elsewhere. You might remember Ryan Niebel, one of the lawyers involved with Ryan Cohen's activist investments. It is really just a product of counseling him on the risks. And at the end of the day, he's the client and will make, you know, the decision that he feels comfortable with. Ryan's really a one-man show.

18:29So he's involved in every decision and very hands-on. Shares of Nordstrom surging more than 20 % today, and this is as activist investor and meme stockmaster. Ryan Cohen secures a, quote, sizable stake in the company. The stock popped in after hours trading just on a Wall Street Journal report that Ryan was involved in the stock. I think Ryan is grappling with who he is. Is he an activist investor? Is he an entrepreneur? Of those categories, what ilk is he? Alibaba on the move after news that activist investor Ryan Cohen has built a stake in the Chinese tech giant. The stake was worth hundreds of millions of dollars at a company with a$300 billion market cap.

19:09Alibaba is a massive company, and Ryan had a small stake. Cohen is pushing for the company to boost its share repurchase program. Nobody takes on a Chinese company because the Chinese government plays a role there. So people were scratching their heads. What does Ryan Cohen think he can accomplish here? My name is Josh Mitts. I'm a professor of law here at Columbia Law School. For several years, I've been advising the Department of Justice on market manipulation and securities violations. I also have served as an expert witness in this area, that is securities, the capital markets, and questions like that.

19:48We haven't seen people like Ryan really articulate a thesis for what they're doing. You see Ryan really kind of taking a page from the Elon Musk playbook of like, oh, Twitter is a pretty powerful weapon. My tweets can move shares. Why don't I use that tool now that I have it? I do think that people need to be careful not to read into something that's not there. Ryan's not giving anyone investment advice. He's making jokes, making posts that are funny, relevant to him. But he's not telling anyone what to do. Regulators, prosecutors, enforcement, like we're all in the dark. Scholars, like we are learning ourself.

20:31We're watching the market evolve. We need people to say these are the rules and these are what the rules should be. The real danger here is that when you follow an activist investor is when they change their minds, you're going to be left with nothing because everybody's going to run away from that. That from the former chief of the SEC's Office of Internet Enforcement, John Stark. That kind of risk is not a risk that I'd be willing to take if I were an investor, or certainly the SEC would not recommend that you take those kinds of risks. And a word of caution from Brandon, the investor who used to follow Ryan Cohen.

21:09I should have realized that this was all too good to be true. If I could speak to these meme stock Reddit communities that you guys really need to be careful. If you don't trust the people on Wall Street, these billionaires, why are you trusting another billionaire that's not really seemingly being very forward? I think that there is a want on Wall Street to think of the good guys and the bad guys. And I think that we don't know enough about Ryan Cohen to know where he fits in. Investor Larry Chang, Ryan's friend and GameStop board member, is optimistic. He has the capacity to be wildly successful if, in fact, the way you generate returns is by zigging when everyone else is zagging.

21:51He is a strong force. He's getting companies to listen to him. You may want to think of him as a joke because he tweets inappropriate tweets, but he has people who are following him. They will always remember Ryan Cohen as the guy who got GameStop above$400 a share. It's hard to forget that. Regardless of what happens in the future, he has turned the markets upside down. He's done unprecedented things. At every point in the journey of knowing Ryan, what normal people would do is not what he did. The next big question, though, for Ryan Cohen is, when he does get involved as an activist, will he have success as an activist?

22:32Not just make money from his investment, but can he enact change? Thanks for listening to this special CNBC podcast. I'm Mary Hannon. To stream Making of the Meme King, go to cnbcdocumentaries.com.