Jake Freeman, 20, amassed large stake in ailing US homeware retailer before its share price soared.
A 20-year-old US university student has made a $110m (£91m) profit with a one-month bet on the meme stock Bed Bath & Beyond Inc (NASDAQ: BBBY).
Jake Freeman and his family bought almost 5m shares in the struggling US homeware retailer at less than $5.50 a share in July for a total outlay of about $25m.
After an almost 500% increase in the shares, sparked by intense chatter about the stock on Reddit message boards, including several posts by Freeman, he sold them for more than $130m – crystallising the vast profit.
They rose as high as $28 on Tuesday, when Freeman is understood to have sold most of his stake. The Bed Bath & Beyond shares, which trade on the ticker BBBY, dropped to $23 on Wednesday, and were down a further 14% in pre-market trading on Thursday to $19.70.
Meme stocks are those that soar independently of the success of a business, thanks to hype on message boards and social media. They rose to prominence early last year when shares in ailing companies such as the US retail firm GameStop Corp. (NYSE: GME) soared, partly driven by a campaign to punish hedge funds betting that their value would fall.
Although those shares eventually slid back down, the meme stock trend has had a revival this summer, with BBBY shares leading the charge.
Freeman, an applied mathematics and economics student at the University of Southern California, said he had been “shocked” at the speed of the surge in the stock.
“I certainly did not expect such a vicious rally upwards,” Freeman told the Financial Times in an interview. “I thought this was going to be a six-months-plus play… I was really shocked that it went up so fast.”
Freeman, who has regularly interned at New Jersey hedge fund Volaris Capital, said he celebrated the trading success by going to dinner with his parents in the suburbs of New York City where they live.
The student, who at one point owned more than 6.2% of BBBY via his Freeman Capital Management fund according to US Securities and Exchange Commission (SEC) filings, said he raised the $25m stake from friends and family. His uncle is Scott Freeman, a former pharmaceuticals executive who helps manage the FCM fund.
When his stake in BBBY was revealed last month he wrote to company’s board warning that the retailer was “facing an existential crisis for its survival”. “To effectuate its survival, BBBY needs to cut its cash-burn rate, drastically improve its capital structure and raise cash,” he said in the letter according to a copy filed with the SEC.
At the same time he introduced himself to members of the BBBY Reddit page with a post titled Giving BBBY a chance. “Hi Everyone, I’m Jake Freeman,” he said. “I truly think FCM’s proposed plan likely provides a great opportunity for BBBY to succeed. It provides ‘buy-buy-time’.”
Freeman told Redditors that he had “worked in the financial industry since 14 years old and have been interested in finance since I was 12”. He said he was particularly interested in “the planar isoperimetry problem under Gaussian measure”.
When he was 16 he co-wrote a paper called Irreducible Risks of Hedging a Bond with a Default Swap.
BBBY shares dropped in after-hours trading on Wednesday after Ryan Cohen, GameStop’s chair and 12% shareholder, disclosed he was planning to sell his entire stake.
Source: US Student Makes $110m Profit Trading Meme Stock Bed Bath & Beyond.
