Here is why GameStop shares are rallying

GameStop Corp (NYSE: GME) stock jumped 20% after hours on Tuesday after rallying almost 30% in regular trading. On Wednesday morning, the shares were up 13.7%. 

Ryan Cohen purchases 100,000million GameStop shares

The company’s Chairman Ryan Cohen purchased another 100,000 shares of GameStop to bring his ownership to 11.9% as the activist investor pushes the company into e-commerce. Cohen acquired the shares via his investment company RC Ventures, and now he owns 9.101 million GameStop shares.

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Last year, the Chewy founders joined the game retailer as a chairman of the special committee established by the GameStop board to help in transformation. Following Cohen’s appointment, the company experienced a massive short squeeze that captured the attention of Wall Street. As a result, the stock finished last year with gains of 680%.

GameStop sued for $30 million unpaid consultancy fees

Although GameStop is enjoying the rally, not everybody is happy with it. Boston Consulting Group has sued the company for around $30 million in fees that it claims were for setting the company on a sustainable path almost two and a half years ago.

According to the management consultant, after being engaged in 2019 to help GameStop recover from a downturn, a plan was worked upon to reorganize the company, including pre-owned electronics and video game divisions.

 A complaint lodged on Tuesday in Delaware federal court indicates that Boston Consulting expended “tens of thousands of hours” on the work and “overachieved” by providing more profit enhancement prospects than were first predicted.

GameStop stated that it plans to fight the suit that it says lacks merit and reflects the consulting firm’s “prioritization of excessive fees over clients’ interests.”

The company indicated in a statement:

It is confounding that the high-priced consultants at BCG claim to have delivered hundreds of millions in value for GameStop during a period when share price, sales, and debt were at perilous levels.

BCG said that under the company’s CFO at the time, its invoices were unpaid “despite there being no legitimate dispute over BCG’s full performance and the fees coming due.”

GameStop concluded that it is not in their shareholder’s best interest to pay millions in dollars the management consultant is seeking, considering its minimal impact on the company’s bottom line.