Can You Commit Securities Fraud by Tweeting an Emoji?

Shareholder Advocate Fall 2023

October 25, 2023

By Jan E. Messerschmidt

Can you commit securities fraud by tweeting an emoji? One court confirmed that you can in an important recent decision from the District Court for the District of Columbia.

In Bed Bath & Beyond Corporation Securities Litigation,1 Judge Trevor McFadden held that the plaintiffs had adequately alleged multiple securities fraud, insider trading, and market manipulation claims against Ryan Cohen.

Defendant Cohen is an entrepreneur-turned-investor who founded the online pet store Chewy and sold it for more than $3 billion. Most recently, Cohen became an investor in so-called “meme stocks.” These stocks are popular among retail investors who gather online on Twitter (now known as “X”) and Reddit, often using memes and emojis to discuss their trades (thus the moniker “meme stock”). Meme stock traders are known for buying and selling stocks of companies that most traditional investors either ignore or short (that is, bet that the price will fall rather than rise).

Cohen entered the meme stock fray in 2020 by buying a large stake in GameStop, the struggling brick-and-mortar video game retailer. After buying his stake in GameStop, Cohen made multiple business recommendations and soon selected several directors of its board. GameStop had been popular with meme stock investors, but when they found out about Cohen’s involvement, GameStop’s stock soared by more than 40%. Cohen’s popularity rose and he was soon viewed as the leader of meme stock investors, with media outlets naming him the “meme stock king.”

Cohen followed the same playbook with the struggling retailer Bed Bath & Beyond. In early 2022, Cohen bought a 9% stake in the company and, as with GameStop, made public business recommendations and picked several members of Bed Bath & Beyond’s board. Cohen’s main proposal for Bed Bath & Beyond was that the company should sell its one bright spot, its subsidiary buybuy BABY, which sells items for babies and children. As with GameStop, Bed Bath & Beyond’s stock price rose and became a popular meme stock, despite the company’s well-known struggles.

But by August 2022, Bed Bath & Beyond’s leadership had decided against selling buybuy BABY. Instead, the company planned to use the subsidiary as collateral to borrow more money, an agreement finalized in late August 2022. At the same time, Bed Bath had announced more bad news, firing 20% of its workforce and closing 150 stores.

But before all that became public, Plaintiffs allege, Cohen hatched a plan to profit from his huge investment in Bed Bath & Beyond. As alleged in their complaint, starting in early August 2022, Cohen made three moves designed to drive Bed Bath & Beyond’s stock price higher so that Cohen could sell his stake at a profit.

First, Cohen tweeted an emoji. On August 12, 2022, tweeted a negative story about Bed Bath & Beyond accompanied by a picture of a woman pushing a shopping cart in one of the Company’s stores. Cohen fired back with a tweet saying, “At least her cart is full,” which he capped with an emoji of a “smiley moon.”

Ryan Cohen Bed Bath & Beyond Tweet

Many meme stock investors interpreted Cohen’s smiley moon emoji to mean “to the moon” or “take it to the moon,” a phrase that meme stock investors commonly use when they are predicting a stock price to increase. The complaint alleges that Cohen used the tweet to tell his thousands of meme stock investor followers that Bed Bath’s stock was about to rise and that they should either buy or hold their positions. And they appeared to act on his tip. Bed Bath’s stock price soared.

Four days later, Cohen filed a Schedule 13D document with the SEC stating that he had not recently sold any Bed Bath Stock. If Cohen had any concrete plans to sell his stock, he was legally required to disclose those plans on his Schedule 13D, but Cohen mentioned no such plans. Meme stock investors saw this as even more evidence that Cohen remained enthusiastic about Bed Bath’s growth prospects and its stock price continued to rise.

Finally, later that same day, Cohen filed a Form 144 with the SEC, which outlined his potential plan to sell his stock. But at that time, Cohen could file his Form 144 on paper via email, so his Form 144 was not immediately made public.

Meanwhile, over two days, on August 16 and 17, Cohen quietly sold his entire stake in Bed Bath & Beyond for a whopping profit of $68 million. When news finally broke that Cohen had sold off his entire stake, Bed Bath’s stock plunged by more than 50% within a few days.

Moving to dismiss the complaint, Cohen claimed that emojis can never be actionable because they have no defined meaning, asserting that there is no way to establish the truth of “a tiny lunar cartoon.”2 Judge McFadden rejected that argument, explaining that emojis are “symbols” that are an “effective way of communicating ideas” and “[e]mojis may be actionable if they communicate an idea that would otherwise be actionable.”3 Judge McFadden put it simply: “A fraudster may not escape liability simply because he used an emoji.”4

In this case, Judge McFadden explained, the complaint plausibly alleged that the smiley moon tweet relayed Cohen’s communication to his followers that Bed Bath & Beyond’s stock price was going up and that they should buy or hold.

Judge McFadden rejected most of Cohen’s other arguments as well. Cohen argued that the Complaint did not adequately allege “scheme liability” under Section 10(b) of the Exchange Act, claiming that scheme liability claims cannot be based “solely upon misrepresentations or omissions.” But Judge McFadden explained the Complaint alleged “a pump and dump scheme that relies on more than just misrepresentations or omissions,”5 including Cohen’s delayed filings of two SEC forms. Judge McFadden also refused to dismiss the Plaintiff’s insider trading claims under Section 20A and its market manipulation claims under Sections 9(a)(3) and 9(a)(4), providing important precedent for claims that are rarely litigated.

Six weeks after Judge McFadden’s decision, The Wall Street Journal reported that the SEC was investigating Cohen about his ownership and trades of Bed Bath & Beyond stock, making clear the significance of Cohen’s alleged misconduct.

  1. Cohen Milstein filed the first amended complaint in the case and currently serves as Liaison Counsel to the proposed class.
  2. In re Bed Bath & Beyond Securities Litigation, 1:22-cv-02541, ECF No. 91, at 10 (D.D.C. July 27, 2023).
  3. Id.
  4. Id. at 10-11.
  5. Id. at 22.
  6. Id.