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Matt Levine

The Best Fraud Is in Plain Sight

Hertz, D&O insurance, Wirecard, Insys, eBay, travel insurance and toilet plumes.

On May 22, Hertz Global Holdings Inc. filed for bankruptcy. Then its stock started to go up. At its post-filing peak, it closed at $5.53 per share on June 8, for a market capitalization of almost $800 million. About 533 million shares—worth almost $3 billion—traded that day. That’s weird. Usually the effect of bankruptcy is to wipe out all the shareholders. Hertz’s senior unsecured bonds were trading at about 40 cents on the dollar at the time, suggesting that its creditors were not expecting to be repaid in full, which they’d need to be if the stock was going to be worth anything at the end of bankruptcy. So the stock rally did not make a whole lot of sense.

As Hertz and its advisers watched the stock trading, they thought: Wait, we should get in on that. The thing about all those people inexplicably buying Hertz stock is, they were not buying the stock from Hertz. They were buying it from each other, on the stock exchange. Hertz really needs money, though. It figured, if people want to buy billions of dollars’ of Hertz stock, they should buy that stock from Hertz, and then Hertz would use the money to be less bankrupt.