GameStop (GME.US) CEO embroiled in legal dispute, stock falls below $20

Despite GameStop (GME.US) shares falling below the $20 mark, the company's CEO Ryan Cohen has recently become the focus of multiple legal lawsuits. As the once-labeled "meme stock" company faces future uncertainty, will Cohen's controversy become a new distraction for investors and management? Recently, the Federal Trade Commission (FTC) announced that Cohen will pay $985,320 in civil penalties to settle allegations that he violated the HSR Act by acquiring over 562,000 shares of voting securities in Wells Fargo without proper disclosure. The HSR Act requires companies to report to the federal antitrust agency when they acquire a certain amount of shares in another company.

The FTC noted that Cohen's acquisition did not qualify for the HSR Act's investment exemption, despite his holdings being less than 10% of the outstanding voting securities. The FTC's filing mentioned that Cohen acquired the shares with the intent to influence Wells Fargo's business decisions, evidenced by the emails he sent in his bid for a board seat and his communications with bank leadership after the acquisition.

In addition, Cohen and his company RC Ventures were sued by Bed Bath & Beyond (now a division of Beyond (BYON.US)) in August, alleging Cohen traded on insider information to illegally profit by about $47 million. The lawsuit stated that Cohen made dozens of profitable trades in Bed Bath & Beyond stock while serving on the company's board.

Meanwhile, GameStop's management has remained silent, except for releasing earnings reports and submitting filings to the Securities and Exchange Commission, while actively formulating strategies. The company revealed that as part of achieving sustained profitability, GameStop will continue to assess its international assets and operations to determine their strategic and financial fit, and divest redundant and underperforming assets. Additionally, the company has initiated a store portfolio optimization review, which may result in closing more stores than in recent years.

Some investors speculate that Cohen may have other plans beyond driving profitability for GameStop's traditional business. On Wednesday, GameStop's shares fell 2.53% to close at $19.65, down about 70% from its 52-week high, near the 200-day moving average of $18.74. GameStop's all-time high closing price was $86.88 on January 27, 2021 (adjusted for stock splits).