Bed Bath & Beyond Sold Some Stock

In May 2020, Hertz Global Holdings Inc. filed for bankruptcy. Then its stock went up, in an early burst of enthusiasm for what would later be called meme stocks. Hertz thought, well, if our stock is going up, we should sell some stock, to raise money to pay off our creditors — that is pretty much our duty as a company in bankruptcy. So it went to the bankruptcy court to ask for permission to sell stock, and the court was like “sure I guess, good for creditors,” and Hertz launched an at-the-market offering to sell up to $500 million of common stock to retail investors at the prevailing market price. The prospectus included a warning to the effect of (1) Hertz is bankrupt and (2) “we expect that common stock holders would not receive a recovery” in bankruptcy: basically, a warning that the stock was worthless. But if people wanted to buy it, go ahead!

People did want to buy it, at least a little bit, but the US Securities and Exchange Commission quickly called up Hertz to say no, that’s not allowed, you can’t just sell stock to retail investors at market prices when you are bankrupt. “Fraud in plain sight,” a lawyer called it: Hertz knew the stock was worthless and was, in some sense, tricking people into buying it, even though it did explicitly tell them that it was worthless. The offering was quickly shut down. As it turns out the stock was not worthless, Hertz exited bankruptcy with significant recovery for the equity, and probably the SEC should have let it sell stock to retail investors, but never mind.