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Perhaps it was the last gasp of the meme trading boom that gripped US stock markets. Jake Freeman, a 20-year-old college student from New Jersey, made over $110mn on an inexplicable surge in ailing US retailer Bed Bath & Beyond. The windfall became a global sensation because of its size and Freeman's age. Freeman was introduced to investing as a teenager by his uncle. At the age of 16 he interned at a quantitative hedge fund where he and its founder published two academic papers examining financial theories on debt defaults and options contracts.
The fund's founder, Vivek Kapur, called Jake, quote, "a smart, sharp guy with a dense set of neurons that can address any problem without dogma." Freeman, an applied mathematics student at the University of Southern California, attempted to put his theories into practice. He focused on once-soaring meme stocks, such as AMC, GameStop, and Bed Bath, which had fallen sharply. Day traders had engineered short squeezes on funds that wagered these stocks would fall.
Freeman believed that the company's volatility - evident in options prices - could be used to raise emergency cash. Pharmacy Rite Aid became his next target before he turned his attention to Bed Bath. Quote: "I noticed how with the right sort of realigning of their debt, they could really reduce their bankruptcy thesis," said Freeman. He raised millions from nearby investors and family and bought 6 per cent of Bed Bath for $15mn.
He proposed that Bed Bath offer bond holders warrants and convertible notes to cut its debt. The unconventional suggestion was similar to a failed manoeuvre attempted by rental car agency Hertz in 2020. On July 20, Freeman disclosed the proposal, then began discussing his investment on Twitter and Reddit. In August, Bed Bath shares started soaring amid interest from posters on Reddit.
They rose further after GameStop chair Ryan Cohen - a meme stock figurehead - filed documents detailing a previous purchase of call options. In August, Freeman decided that the rally had pushed Bed Bath shares too high, and sold his stake for an over $110mn gain.