DK Butterfly v. Ryan Cohen
Section 16(b) Short-Swing Profits — Transaction Analysis, Admissions Chart, and Litigation Schedule
S.D.N.Y. No. 1:24-cv-05874 — Judge Buchwald
At a Glance
Case Summary
DK Butterfly (the renamed post-bankruptcy BBBY entity, controlled by Plan Administrator Michael I. Goldberg) seeks disgorgement of short-swing profits under Exchange Act §16(b). The core claim: Cohen's 9,450,100 shares exceeded the 10% threshold when calculated against the actual share count (~79.96M) rather than the stale count (96.3M) used in his 13D filing. As a statutory insider, his purchases and sales within a six-month window generate recoverable short-swing profits.
The Core Claim: Stale Denominator
Cohen's initial 13D filing used a share count from November 2021, but BBBY had been aggressively buying back shares. By February 25, 2022, the actual outstanding count was far lower.
Stale Denominator (Used in 13D)
From November 27, 2021 10-Q (filed January 6, 2022). Cohen's 9,450,100 shares = 9.8%. Below the 10% threshold.
Actual Share Count
Per 10-Q filed June 29, 2022 (shares as of May 28). Cohen's 9,450,100 shares = 11.8%. Above the 10% threshold since at least February 25, 2022.
Why It Matters
Between November 2, 2021 and end of FY2021 (February 26, 2022), BBBY repurchased approximately $400 million in shares. This was publicly disclosed before Cohen began buying in January 2022. The SAC alleges Cohen knew or should have known the 96.3M denominator was stale, and that his position had crossed the 10% threshold — triggering Section 16 insider status, Form 3 filing obligations, and short-swing profit liability.
| Date | Event | Shares Outstanding | Cohen's % | Source |
|---|---|---|---|---|
| Nov 27, 2021 | Denominator used in initial 13D | 96,337,713 | 9.81% | SAC ¶128 |
| Feb 25, 2022 | Cohen crosses 10% (alleged) | ≤81,675,122 | ≥10.22% | SAC ¶159 |
| Mar 26, 2022 | Per 10-K (filed Apr 21) | 79,845,789 | 11.84% | SAC ¶152 |
| May 28, 2022 | Per 10-Q (filed Jun 29) | 79,957,649 | 11.82% | SAC ¶153 |
| Aug 16, 2022 | 13D/A No. 2 (updated denominator) | 79,957,649 | 11.82% | ECF 38-3 |
Transaction Tables
All transactions per SAC Table 1 (ECF 38, ¶163). Purchases occurred February 22–March 3, 2022. Sales occurred August 16–17, 2022.
Common Stock Purchases (Feb 22–Mar 3, 2022)
| # | Date | Shares | Price/Share | Cumulative |
|---|---|---|---|---|
| 1 | 02/22 | 75,000 | $14.03 | 75,000 |
| 2 | 02/24 | 367,833 | $15.21 | 442,833 |
| 3 | 02/24 | 500,000 | $13.66 | 942,833 |
| 4 | 02/24 | 500,000 | $14.58 | 1,442,833 |
| 5 | 02/24 | 300,000 | $13.43 | 1,742,833 |
| 6 | 02/25 | 542,621 | $16.22 | 2,285,454 |
| 7 | 02/25 | 115,000 | $16.11 | 2,400,454 |
| 8 | 02/28 | 500,000 | $16.60 | 2,900,454 |
| 9 | 03/01 | 307,341 | $16.94 | 3,207,795 |
| 10 | 03/01 | 311,660 | $16.76 | 3,519,455 |
| 11 | 03/01 | 70,545 | $16.68 | 3,590,000 |
| 12 | 03/02 | 69,516 | $17.25 | 3,659,516 |
| 13 | 03/03 | 20,484 | $16.81 | 3,680,000 |
Total common shares purchased: 3,680,000. Pre-existing position: 5,770,100 shares (9,450,100 total minus 3,680,000 purchased).
Call Option Purchases (Feb 28–Mar 1, 2022)
| # | Date | Strike | Expiry | Underlying Shares | Stock Price |
|---|---|---|---|---|---|
| 14 | 02/28 | $60.00 | Jan 2023 | 475,700 | $16.89 |
| 15 | 02/28 | $75.00 | Jan 2023 | 24,300 | $16.89 |
| 16 | 03/01 | $60.00 | Jan 2023 | 500,000 | $16.67 |
| 17 | 03/01 | $60.00 | Jan 2023 | 150,000 | $16.67 |
| 18 | 03/01 | $75.00 | Jan 2023 | 20,100 | $16.67 |
| 19 | 03/01 | $80.00 | Jan 2023 | 500,000 | $16.67 |
Total call option underlying shares: 1,670,100 ($60 strike: 1,125,700; $75 strike: 44,400; $80 strike: 500,000).
Common Stock Sales — August 16, 2022 (5M-Share Firm Order)
| # | Shares | W.A. Price | Price Range | Remaining |
|---|---|---|---|---|
| S1 | 446,399 | $18.68 | $18.06–$19.05 | 9,003,701 |
| S2 | 812,448 | $19.48 | $19.06–$20.01 | 8,191,253 |
| S3 | 1,443,818 | $20.78 | $20.12–$21.11 | 6,747,435 |
| S4 | 1,059,021 | $21.42 | $21.12–$22.11 | 5,688,414 |
| S5 | 795,559 | $22.71 | $22.13–$23.12 | 4,892,855 |
| S6 | 169,335 | $23.33 | $23.13–$23.84 | 4,723,520 |
| S7 | 103,901 | $24.87 | $24.15–$25.14 | 4,619,619 |
| S8 | 104,077 | $25.59 | $25.15–$26.06 | 4,515,542 |
| S9 | 65,442 | $26.27 | $26.15–$26.45 | 4,450,100 |
Day 1 total: 5,000,000 shares sold across 9 tranches. Remaining: 4,450,100 shares (5.57% of 79,957,649).
Remaining Sales — August 17, 2022
| # | Shares | W.A. Price | Price Range | Remaining |
|---|---|---|---|---|
| S10 | 189,689 | $23.73 | $23.06–$24.05 | 4,260,411 |
| S11 | 512,185 | $24.63 | $24.06–$25.05 | 3,748,226 |
| S12 | 896,238 | $25.50 | $25.06–$26.05 | 2,851,988 |
| S13 | 610,828 | $26.44 | $26.06–$27.05 | 2,241,160 |
| S14 | 323,483 | $27.58 | $27.06–$28.05 | 1,917,677 |
| S15 | 140,788 | $28.51 | $28.06–$29.05 | 1,776,889 |
| S16 | 106,789 | $29.22 | $29.06–$29.99 | 1,670,100 |
Aug 17 common shares sold: 2,780,000. Remaining 1,670,100 shares = call option underlying equivalent.
All 1,670,100 call option shares were also sold August 17 across 5 tranches (16,701 contracts). Contemporaneous stock price used for Rule 16b-6(c)(2) matching: $23.08 (BBBY closing price). After August 17: Cohen held zero shares and zero options.
Profit Calculations
Calculated using lowest-in/highest-out method per Smolowe v. Delendo Corp., 136 F.2d 231 (2d Cir. 1943).
Full Matching (All Transactions)
All purchases (Feb 22–Mar 3) matched against all sales (Aug 16–17). Basis: Cohen was a statutory director by virtue of appointing Bowen, Rosenzweig, and Lombard to the board. SAC ¶169, 181.
10% Owner Subset Only
Only transactions while Cohen was above 10% ownership (subset of italicized rows in SAC Table 1). This is the narrower §16(b) 10%-owner theory. SAC ¶172, 182.
Admissions Chart
How Cohen responded to each key allegation in the Answer (ECF 40, filed August 12, 2025). Paragraphs 127–172 cover ownership and trade allegations.
| ¶ | Allegation (Summary) | Response |
|---|---|---|
| 127 | Cohen disclosed 9,450,100 shares on March 7, 2022; calculated 9.8% | ADMIT |
| 128 | Percentage assumed denominator of 96,337,713 from Nov 2021 10-Q | ADMIT |
| 129 | Share count was stale; Cohen had reason to know | DENY |
| 130 | Between Nov count and Mar 13D, BBBY buybacks shrank denominator | LACK KNOWLEDGE |
| 131–136 | Board-authorized $1B buyback program details (publicly disclosed) | LACK KNOWLEDGE |
| 137 | November 2 press release attached as Ex. H | ADMIT |
| 138 | Press release disclosed $400M authority through end of FY2021 | DOC SPEAKS |
| 139 | FY2021 ended Feb 26, 2022; reasonable investor on notice | PARTIAL Admit FY end date; deny rest |
| 140 | Jan 6, 2022 investor presentation: ~$275M expected in Q4 | DOC SPEAKS |
| 141–144 | Math showing $400M buyback would reduce count by 15.5M+ shares | LACK KNOWLEDGE |
| 146 | Post-buyback, max ~85.6M outstanding by March 7 | LACK KNOWLEDGE |
| 147 | 9,450,100 shares ÷ ~85.6M = more than 11% | DENY |
| 148 | Virtually assured to own >10% given buyback completion | DENY |
| 149 | Cohen reviewed disclosures, knew of buybacks, mentioned in March 6 letter | PARTIAL Doc speaks + deny |
| 150 | Cohen ignored buyback info in calculating ownership | DENY |
| 151–153 | Apr 21 10-K (79.8M shares); Jun 1 proxy (79.9M); Jun 29 10-Q (79.96M) | DOC SPEAKS |
| 154–155 | Denominator overstated by 20%+; Rule 13d-2(a) required amendment | CONCLUSION → DENY |
| 156 | Did not amend until August 16, 2022 | PARTIAL Admit filing date; doc speaks |
| 157 | Ignored share counts while extracting every other morsel | DENY |
| 158–160 | Exceeded 10% before finishing purchases; remained above until Aug 16 | CONCLUSION → DENY/LACK |
| 162 | Form 4 trades were only transactions reported under Section 16(a) | ADMIT |
| 163 | Table 1 lists all transactions | PARTIAL Admit transactions occurred; deny rest |
| 164 | All trades made over open market (stock + standardized options) | ADMIT |
| 166–172 | Rule 16b-6 calculations; $47.2M profit; $8.4M subset profit | CONCLUSION → DENY |
Notable Pattern: “Lack Knowledge” on Public Facts
Cohen responded "lack knowledge" to ¶¶130–136 and 141–144 — allegations about BBBY's publicly disclosed buyback program. These facts were available in press releases and SEC filings before Cohen began purchasing shares. The "lack knowledge" response to public disclosures may face scrutiny at summary judgment.
Key Affirmative Defenses
Second Defense (Rule 13d-1): Good-faith reliance on the most recent issuer share-count reporting. Fourth Defense (§23(a)): Good-faith conformity with SEC rules. These defenses respond to the stale denominator allegations and argue Cohen reasonably relied on BBBY's last-filed share count.
Litigation Schedule
Current as of February 19, 2026. Key deadlines from ECF 37 (original), ECF 47 (amended), and ECF 49 (extension).
| Task | Original (ECF 37) | Amended (ECF 47) | Extension (ECF 49) | Status |
|---|---|---|---|---|
| Fact Discovery Cutoff | Dec 15, 2025 | Jan 30, 2026 | Feb 20, 2026 | Imminent |
| Depositions | Oct 31, 2025 | Dec 15, 2025 | — | Past Due |
| Requests for Admission | Nov 14, 2025 | Dec 30, 2025 | — | Past Due |
| JPMorgan Doc Production | — | — | Feb 6, 2026 | Expected |
| JPMorgan Deposition | — | — | Feb 20, 2026 | Imminent |
| Expert Discovery Notice | — | Feb 27, 2026 | — | 9 Days |
| Summary Judgment (No Experts) | — | Apr 7, 2026 | — | Upcoming |
| Trial | Jury, estimated 1–3 days | TBD | ||
Critical: JPMorgan Subpoena
Subpoena served December 29, 2025. JPMorgan informed plaintiff it could produce documents by February 6, 2026, and sit for deposition by February 20, 2026. Both defendants consented to the extension. The JPMorgan document production and deposition are the most critical remaining discovery items — they may reveal internal communications about Cohen's trading, compliance discussions, and the Form 144 process.