Money Stuff: The Best Fraud Is in Plain Sight

Hertz 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.[1] 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. So Hertz went to the bankruptcy judge to ask for permission to sell stock.[2] The bankruptcy judge, whose basic job is to maximize the value of Hertz for its creditors, said, well, look, if people want to give you money for nothing, that is good for the creditors, so who am I to object. So she approved. Hertz's lawyer memorably told her: "New platforms for day traders may be facilitating this," Mr Lauria said, referring to Robinhood, the stock trading app popular with young retail investors. "There are forces at work that us non-financial people, that we can only observe." So off Hertz went to sell stock. Last Monday, it filed a prospectus for its at-the-market offering of up to $500 million of stock. It is a magnificent document. Like other big mature public companies, Hertz can sell stock using a minimal "shelf" registration statement. The prospectus says almost nothing; the conceit, with big normal public companies, is that everything you need to know about them is already in their other SEC filings, so they don't need to say much in the prospectus beyond "hey we're selling stock and here's why." If there's any news since the last quarterly filing, it goes in a brief "Recent Developments" section. Hertz's "Recent Developments" is brief, as is customary. It is four paragraphs that say, basically, "lol we're bankrupt." That's a recent development! Hertz's most recent financial statements are as of March 31, from a Form 10-Q filed on May 11. If you just look at the March balance sheet, you will see book equity of almost $1.5 billion. If Hertz sold its assets and paid off its liabilities, there'd be $1.5 billion left over for shareholders, those financial statements say, as of March 31. Now … well, there's no updated balance sheet, but here's what the prospectus says about what's left over for shareholders: As previously disclosed, on May 22, 2020, we filed voluntary petitions under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court, thereby commencing the Chapter 11 Cases for certain debtors, including Hertz Global Holdings, Inc. The price of our common stock has been volatile following the commencement of the Chapter 11 Cases and may decrease in value or become worthless. Accordingly, any trading in our common stock during the pendency of our Chapter 11 Cases is highly speculative and poses substantial risks to purchasers of our common stock. As discussed below, recoveries in the Chapter 11 Cases for holders of common stock, if any, will depend upon our ability to negotiate and confirm a plan, the terms of such plan, the recovery of our business from the COVID-19 pandemic, if any, and the value of our assets. Although we cannot predict how our common stock will be treated under a plan, we expect that common stock holders would not receive a recovery through any plan unless the holders of more senior claims and interests, such as secured and unsecured indebtedness (which is currently trading at a significant discount), are paid in full, which would require a significant and rapid and currently unanticipated improvement in business conditions to pre-COVID-19 or close to pre-COVID-19 levels. We also expect our stockholders' equity to decrease as we use cash on hand to support our operations in bankruptcy. Consequently, there is a significant risk that the holders of our common stock, including purchasers in this offering, will receive no recovery under the Chapter 11 Cases and that our common stock will be worthless. I have bolded the important bits there, which are that the people who buy stock in the offering will get nothing unless there is "a significant and rapid and currently unanticipated" improvement in the business. "Unanticipated" by whom, you might ask. Certainly by Hertz's creditors. Presumably also by the bankers and lawyers who wrote that amazing paragraph, and by the bankruptcy judge who gave Hertz permission to go ahead and do this nutty thing. But not by the people buying the stock! You don't buy stock if you do not anticipate it being worth anything. I think? We are not in normal territory here.  When we last talked about Hertz, before the prospectus came out, I explained the position of the bankers and lawyers writing it. "You don't have to give investors lavish scary warnings that Hertz might go bankrupt," I wrote, "because Hertz is bankrupt. 'We're in bankruptcy, you dopes, and your stock will probably be worthless'; what more is there to say?" The block quote above is that, in legalese. Hertz went out to investors saying "hey our stock is probably worthless, do you want some," hoping that the investors would say "no no no you are being too hard on yourself, your stock is great, we will take some." In the event, the U.S. Securities and Exchange Commission told them to knock it off. On Monday afternoon, hours after filing the prospectus, Hertz got a call from the SEC staff, who said that they "intended to review the Prospectus Supplement." By Thursday, "the Finance Committee of the Board of Directors determined that it was in the best interests of the Company to terminate the ATM Program and directed that the ATM Program be terminated," and this wild experiment was over.[3] What did the SEC say, I wonder? Here's Jay Clayton: "We have let the company know that we have comments on their disclosure," SEC Chairman Jay Clayton said in a CNBC interview Wednesday. "In most cases when you let a company know that the SEC has comments on their disclosure, they do not go forward until those comments are resolved." Now, Hertz's disclosure was obviously terrible. Imagine how you would actually try to pitch an intelligent investor on the idea of buying Hertz stock now. You'd probably include some up-to-date financial data, like, "here's how bad April was and here's the improvement we're seeing in June." You might want to extend that into projections of what the next few quarters might look like. Hertz's fleet of cars, which is the collateral that underpins its asset-backed debt, has a volatile and somewhat knowable value; you might want to include some appraisal data or comparable transactions or something to make the case that the fleet is worth more than the debt. And of course you'd have to check all of this off against the debt; you'd need a sources-and-uses table saying "here's how much money we have, here's how much we have to pay to our creditors and our bankruptcy advisers, and here's how much will be left over for shareholders." If you did all that and got a positive number, it would just be a guess, an estimate, subject to lots of risks. But you'd have a positive number. That's something. Hertz, of course, did none of that. The prospectus doesn't lay out any proposed plan to pay off the creditors and exit bankruptcy with the stock intact; instead, it says that that probably won't happen. The last public financial statements, the ones incorporated into the prospectus, are from March, when Hertz wasn't bankrupt, and they're wildly misleading now. The "Use of Proceeds" section in the prospectus says: "We intend to use the net proceeds from this offering payable to us for general corporate purposes. We do not currently have specific plans or commitments with respect to the net proceeds from this offering." Companies say that all the time—that's what you say, generically, when you're raising money that you have no immediate use for—but usually they are not bankrupt. If you are currently in bankruptcy, and you go out to investors asking them for money to get out of bankruptcy, it is really only polite to explain to them how their money might achieve that purpose. "If you give us $500 million, here's how we'll pay off our debts and right the ship," that sort of thing. There's none of that here, the opposite of that really. "If you give us $500 million, that's your problem," is the message here. Part of the reason for that is just timing: Hertz didn't have a plan to exit bankruptcy yet; it didn't know if raising $500 million from shareholders would actually help. It just figured it couldn't hurt, and people were clamoring to buy Hertz stock so there was some urgency. Another part of the reason is just pure cynicism; Hertz didn't expect the money to be enough, but figured if people wanted to buy it might as well sell. But another reason is that is just not how prospectuses work: You don't put estimates of the current quarter, or projections for the next quarter, in a prospectus, because a prospectus is not really a marketing document; it's not really about making the (uncertain, risky, future-oriented) case for the stock. The prospectus is really a warning document; it's about making sure you've disclosed all the bad things about the stock, so you don't get in trouble later.[4] If Hertz had actually laid out the best case for its stock in the prospectus, it would have been unusual, and I suspect the SEC would have objected. Meanwhile Hertz's actual prospectus seems just fine as a warning document. It seems fine in this specific way: No one who read this prospectus would buy the stock. It makes no case that the stock will have value, and instead explicitly says it will be worthless! But that's okay, because Hertz was not trying to sell the stock to people who read the prospectus. This was not a normal marketed equity offering in which Hertz's bankers send out a prospectus to big fund managers and then meet with them to answer questions. This was an "at-the-market offering," in which Jefferies, Hertz's broker, was going to go out and sell stock on the stock exchange. People on the stock exchange were already buying Hertz stock, pretty clearly without reading anything or thinking too hard about it, so Jefferies was going to sell stock to them. As a formality, there was a prospectus on the SEC website saying "haha you fools do not buy this," but that had nothing really to do with the stock sale.[5] Except that it gave the SEC an excuse to shut down the sale: The SEC found some unspecified problems with the prospectus, so it held up the stock sale until those were fixed. The way to think about this is not that the SEC said "please provide your current financial position and explain how this money will get you out of bankruptcy," because that is not how prospectuses work or even what the SEC wants, and it's not that the SEC said "please put more warnings in bigger fonts," because the warnings are adequate and no one will read them anyway. The way to think about it is that the SEC said "please answer these riddles," and when Hertz answered the riddles the SEC would say "you missed a comma in the fifth riddle, please answer these new riddles," and it would keep going on like that until the bankruptcy court confirmed a plan that did not involve incinerating $500 million from retail investors. The SEC has a certain amount of discretion to delay stock offerings, is the basic legal-realist point here, and they decided to use that discretion to stop an obviously terrible offering. Hertz saw where this was heading and gave up. So everything kind of worked out,[6] but in an unsatisfying way. The SEC disclosure regime is so focused on warnings that it just did not occur to Hertz to use its prospectus to actually make the case that its stock is a good investment, and if it had tried the SEC probably would have stopped it. But also, the SEC disclosure regime is entirely focused on warnings even if no one will read them: The warnings in Hertz's prospectus clearly conveyed the basic message of "this stock is worthless, good luck," but the SEC quite reasonably decided that those warnings would not be enough to scare off retail investors because they just wouldn't read them. Here's a lawyer: "There is a reason this hasn't been done before," said attorney Thomas J. Salerno, who represented owners of the Phoenix Coyotes hockey team when the NHL property was sold in bankruptcy. "How can you sell stock and then take the position later that you can't pay all your creditors? It's either fraud in plain sight, or an admission that the company isn't really insolvent." I love "fraud in plain sight." The SEC is essentially a disclosure regulator; its job is to make sure that companies offering stock fully disclose the risks of that stock. Here the risk is "the stock is already worthless, don't buy it," and Hertz quite candidly said that every chance it got. You can quibble with the details of that disclosure, and the SEC did, but in spirit it was basically fine.  It's just that disclosure is not actually enough. Saying that a stock is worthless will not prevent people from buying it, if they don't read the disclosure, or if they assume that you wouldn't be allowed to offer stock if it was actually worthless, or if they just figure they'll find a greater fool to dump it on. A popular application of Ethereum, for a long while, was building pyramid schemes with names like "Ethereum Pyramid Scheme." Is it a fraud, if you tell everyone up front that it's a fraud? Similarly, here, Hertz was trying to trick retail shareholders into buying worthless stock by the simple expedient of offering the stock and saying, loudly and publicly and in official SEC disclosure documents, that it was worthless and no one should buy it. It's a weird strategy! It almost worked. Everything is securities fraud One long-running thesis of this column is that everything bad that a public company does, and everything bad that happens to a public company, can be securities fraud: The company did not appropriately warn investors about the bad thing, when the bad thing became public the stock dropped, the investors are aggrieved, etc. "Securities fraud" is not just cooking the books to sell more stock; pollution and sexual harassment and lax cybersecurity and a pandemic are all also securities fraud. I mostly write about this as a sort of oddity of American legal culture—securities law works, so it's used to punish all sorts of unrelated bad things—but it is worth also considering it as an economic matter. On a first approximation, securities lawsuits are all very weird because the basic situation is: The stock goes down. Shareholders sue. The company gives them money. The money that the company gives to the shareholders is, in a sense, the shareholders' money, since they own the company. After the lawsuit, they have more money (because the company gave them money), but their shares are also less valuable (because the company has less money), so it's really a wash. A shareholder lawsuit is just a complicated form of dividend, and dividends should not make shareholders richer. But that is only approximately true. For one thing, shareholders buy and sell shares, so the shareholders who get paid may not be quite the same as the ones who pay. Also, though, the company doesn't always come up with the money. Often its directors-and-officers insurer does: The shareholders sue the company and its directors, and the D&O insurer defends the case and pays the settlement. The lawsuit is not a transfer from shareholders to shareholders, with plaintiffs' lawyers taking a cut; it's a transfer from D&O insurers to shareholders (with the lawyers taking a cut). If you imagine that securities lawsuits are mostly about book-cooking and underpriced mergers, then you will think that D&O insurance is a specialized niche product insuring against fairly rare risks. If you imagine that securities lawsuits are a general-purpose way to enforce all laws and norms, then you will think that D&O insurance is a general-purpose product insuring against anything that can go wrong at a public company. The latter should cost more: In the U.S., premium rates for directors-and-officers insurance jumped 44% to 104% in the first quarter compared with the year-earlier period, based on different indexes of corporations that are published by brokerage firms at AON PLC and Marsh & McLennan Cos. ... To hold down the rising costs, some companies are raising their deductibles—the portion they pay before insurance kicks in—while others are reducing maximum payout amounts and setting up self-insurance arrangements. The decision puts them on the hook for more of the expense of fighting lawsuits. It is an especially difficult decision as many lawyers are anticipating a wave of shareholder litigation tied to alleged shortcomings by managers and boards in regards to their handling of Covid-19 matters. See? Securities litigation costs are going to go up because of a pandemic. D&O insurers are general-purpose insurers; they insure against pandemics. So premiums go up when there's a pandemic. But also, D&O insurers are in the process of becoming general-purpose insurers; once they insured companies against the risk of securities fraud, but now they increasingly insure companies against the risk of sexual harassment and pollution and pandemics and any other bad thing. Premiums are going up not only because there are more risks in the world, but because securities-fraud insurance now covers more of those risks. Meanwhile it is a good time to be on the other side of all the lawsuits: Meet litigation finance, an esoteric, high-risk investment strategy that lures with the siren song of double-digit returns. It's an industry with a few publicly traded behemoths, but it remains the preserve of private-equity-style funds that invest in cases, back law firms and act as financial intermediaries when settlements have been reached. And the pandemic could be its time to emerge from its little-known niche. Some of this will come from coronavirus-related suits, like business interruption claims and lawsuits against landlords who do not fulfill their obligations to safeguard their buildings. Wirecard For the last year or so, Dan McCrum, at the Financial Times, has been reporting that German fintech firm Wirecard AG was faking some of its revenue, and Wirecard has been angrily pushing back, accusing McCrum of conspiring with short sellers to push down its stock. Last week Wirecard disclosed that some of its cash was missing, and finally this morning it admitted "that there is a prevailing likelihood that the bank trust account balances in the amount of 1.9 billion EUR do not exist." It went on: The Management Board further assesses that previous descriptions of the so called Third Party Acquiring business by the company are not correct. The Company continues to examine, whether, in which manner and to what extent such business has actually been conducted for the benefit of the company. When you are continuing to examine whether your business has actually been conducted, that's bad! At a minimum, if you are a public company, you really ought to know that your business is, you know, happening. Or, if you do have to check, you should be able to get a quick answer. Wirecard's stock has fallen some 85% since last Wednesday, its chairman has resigned and his margin loan has been called, and it is renegotiating its debt. Obviously? McCrum is a great reporter, but even if you didn't know that, when a company is going around accusing reporters of conspiring with short sellers to bring it down, that is an almost infallible sign that it is going down. (Well, Tesla keeps going up.) Companies that are not doing fraud, when reporters ask if they have faked their revenue, respond by explaining where their revenue comes from. Companies that are doing fraud, when reporters ask if they have faked their revenue, call the police to try to get reporters arrested. The weird thing is that it worked so well for Wirecard for so long. The German financial regulator, BaFin, did file a criminal complaint against FT journalists and short sellers; it also banned short selling of Wirecard stock for two months, "to protect the company from speculators." The news about Wirecard, now, is sort of trivial; anyone who read McCrum's reporting and knew the almost-infallible rules of short-selling conspiracy theories already knew that Wirecard was faking its revenue. The bigger implications of the news are for BaFin, which focused on protecting Wirecard from speculators when in fact the speculators needed protection from Wirecard. It is not a great look: "The Germans institutionally were just determined to rally round and just not look at the facts," said Crispin Odey, a London-based hedge fund manager who last year threatened to sue BaFin after it imposed the ban against short selling.  On Thursday, Fabio De Masi, a senior politician of the leftwing Die Linke party, accused BaFin of "watching [Wirecard] idly for way too long" and called for a "radical change" in the watchdog's regulatory culture.  Money Stuff Crime Blotter I'm sorry, I was away for most of two weeks, and a lot of … just … bad money stuff happened in that time? If I had been writing every day for the last two weeks, I would have discussed each of the following things in loving detail: Don't put it in a spreadsheet. The Financial Times last week had a deep dive on Insys Therapeutics, the opioid maker whose executives went to prison for bribing doctors to prescribe too much of its drug to patients who didn't need it and, often, died from overdosing on it. One thesis of the article is, well, of course drug companies are in the business of bribing doctors to prescribe their drugs, but what gets you in trouble is saying that explicitly: While many pharmaceutical companies pay speakers' fees to doctors, they don't officially expect them to prescribe more of their drug. Kapoor insisted on a clear return on investment. "Dr Kapoor doesn't lose. He made that very clear. He did not want to lose a penny," Burlakoff recalls. Insys sales representatives were instructed to deliver at least a 2:1 return. "The only way that I knew how to do it, to get that guarantee, is to bribe doctors." This clarity was to prove the company's downfall. Prosecutors discovered a spreadsheet — which they dubbed a "smoking gun" — that showed calculations of the return Insys was getting from its investment in speakers' fees. ... Fred Wyshak, one of the prosecutors, said in an interview: "Kapoor decided that, 'If I'm paying doctors to speak, I'm also paying them to write [prescriptions].' And philosophically, that's not supposed to be the way it works. I'm not saying that's not the reality in the pharmaceutical industry, and as I think Burlakoff described it, that's the dirty little secret in the pharmaceutical industry, but nobody ever discusses it." "Nobody ever discusses it," says the prosecutor who prosecuted Insys for discussing it. Other drug companies also pay doctors to speak at events, and everyone kind of knows that really they are paying those doctors for prescribing their drugs, but as long as they don't say that they don't get in trouble (mostly). But once you make a spreadsheet calculating the return you get on your investment in speakers' fees, then it's bribery and you go to prison.  One way to think about this is that there are a lot of traditional ways of doing business, which often involve a certain amount of bribery. And there is an impulse toward modern, scientific financial management, spreadsheets and dashboards and calculations of return on investment. And so if you run a traditional business and use a modern approach, you will find yourself with a spreadsheet calculating the return on your bribes, and it will help you maximize profits and identify opportunities and cut waste, and you will feel very good about yourself until the cops burst in. "Is you taking notes on a criminal conspiracy," Stringer Bell almost says; there is always that tension between running your business professionally and, you know, the fact that your business is crime. To be fair, Insys also made a corporate rap video about pushing opioids, which did not help. The eBay thing! This is how you do PR: Six eBay employees mounted a cyberstalking campaign — including sending boxes of live cockroaches and a Halloween mask of a bloody pig's face — against a couple who ran an online e-commerce newsletter, according to charges filed by federal prosecutors on Monday. Unhappy with the newsletter's coverage of eBay, the employees, none of whom now work at the company, barraged the couple with threatening emails and sent disturbing deliveries, including a funeral wreath and a book on how to survive the death of a spouse, said Andrew E. Lelling, the United States attorney for Massachusetts, in a news conference on Monday. Several of the employees drove to the couple's home to spy on them, he said. As the proprietor of an online newsletter myself, let me say (1) no one has ever sent me live cockroaches, etc., in the mail and (2) please don't start. Inigo Philbrick was arrested in Vanuatu! Philbrick does not seem to have made a previous appearance in Money Stuff, but I have been following his story in the press, because his name is Inigo Philbrick and he is a rakish young art dealer with a dark secret, and who am I to resist such a novelistically perfect plot and character. The basic things to know about Philbrick are (1) he is accused of selling art works multiple times, hahaha should have put it on the blockchain ("You can't sell more than 100 percent ownership in a single piece of art, which Philbrick allegedly did, among other scams," said then-U.S. Attorney Geoffrey Berman), and (2) "Federal law enforcement agents took PHILBRICK into custody yesterday in Vanuatu, after Vanuatu authorities expelled PHILBRICK from Vanuatu at the request of the U.S. Embassy in Papua New Guinea." I do not want to give you legal advice, or speculate on his guilt or innocence, but I must say that if you flee New York in scandal and end up getting arrested in Vanuatu, people are going to assume that you did it. Jho Low is doing stuff in Kuwait! "The Kuwait connection has provided Mr. Low means to fend off U.S. and Malaysian investigators who accuse him of masterminding the plunder of Malaysian state investment fund 1Malaysia Development Bhd, or 1MDB." Low set up 1MDB for the Malaysian government, raised billions of dollars in bond offerings, and then allegedly stole most of it to pay bribes and buy yachts and stuff. That racket eventually ended—with U.S. indictments and the fall of a Malaysian prime minister—but this is the sort of business where, if you develop the right skill set, you'll always be in demand. There just aren't that many people with a proven track record of plundering billions of dollars of government money to spend on bribes and yachts, and there are lots of government officials who would love to be bribed as long as it can be done in a professional manner.  Illicit trading in travel insurance! This is wonderful: A woman has been arrested by police in Nanjing for getting rich off the tendency in China for flights to take off late. The 45-year-old woman, surnamed Li, booked hundreds of flights from 2015 to 2019. She had no intention of actually taking these trips. Instead, her only goal was to purchase flight delay insurance to turn the flight into a money-making opportunity. Before buying the insurance, Li would analyze local weather conditions and online reviews to judge which flights would be most likely to be delayed or canceled. In this way, she booked over 900 flights in those five years, using her name as well as the names of her friends and family members and made a whopping 3 million yuan ($423,000) in the process. Apparently that's illegal? It doesn't sound like it was insider trading? (Apparently she was "making use of her past travel service work experience," though.) It's just using an insurance product for a purpose it was not designed for (speculation), instead of the purpose it was designed for (protecting your vacation from bad weather). There is a traditional insurance view that you need an "insurable interest" to buy insurance, that you can only buy insurance to protect stuff you actually have. And there is a modern finance view that markets should be complete and you should be able to speculate on either side of anything you like. When individuals try to apply the modern-finance view to consumer insurance products, they tend to get in trouble. Toilet plume As New York City reopens and big banks start working from the office again, here is the sort of operational risk management they will need to be doing: In recent years, fancy hand dryers replaced disposable paper towels as a more sustainable option. With the coronavirus, that will need to change. "Those things are not safe," Buelow said. "The hand dryers can spread contaminated air all over the bathroom." A recent study also showed that toilet plume, or the aerosol droplets that can rise almost 3 feet when a toilet is flushed, can carry coronavirus particles. Lack of ventilation is also an issue. That means companies should consider whether lids need to be installed to avoid potential infection, according to Regina Phelps, the founder of Emergency Management & Safety Solutions, which has been giving clients detailed checklists make sure their buildings are safe for reopening. "This toilet plume is a major problem because there's no lids on toilets," she said. "Many high-rise buildings, they have toilets that have a lot of torque."  I assume that, like, JPMorgan Chase & Co. will hire industry-leading bathroom-safety consultants, and its famously detail-oriented boss Jamie Dimon will have long informed conversations about toilet torque in the weekly Bathroom Committee meetings, because spreading a pandemic at the office really is one of the biggest risks that JPMorgan faces and it needs to take that risk seriously.  But JPMorgan is a gigantic bank with a good risk culture and a lot of offices. It has some economies of scale in addressing its bathrooms. It is strange to think that, in general, "companies should consider whether lids need to be installed." How would they know? Every investment bank and hedge fund and ad agency and software company and law firm is going to need to get up to speed on toilet plumes and come to its own decision, with enormous potential human and liability consequences, about what sorts of lids to install. Presumably it is a boom time for outsourced toilet-safety consultants.  Things happen Eerie Calm Settles on Housing Market, Defying Doomsayers for Now. Vast Federal Aid Has Capped Rise in Poverty, Studies Find. Eddie the Repo Man Has Time on His Hands: What Happens When Your Debt Is Suspended. Coronavirus Cash Needs Prompt Companies to Rethink Investments. Jay Clayton, Low-Profile Regulator, Is Catapulted Into a Political Fight. Boaz Weinstein is doing well. Moneyball for Bonds Aims to Rank Traders Baseball Card-Style. The Masters of the Diamond World Are Losing Control. Selling CITGO—Timing and Process. Singer Akon Is Launching a Cryptocurrency, Building Senegal City. Cosplayer creates record-breaking Batman costume with 30 working gadgets. Town names park after rotting whale officials blew up 50 years ago. Petition calls for Columbus, Ohio, to be renamed 'Flavortown.' If you'd like to get Money Stuff in handy email form, right in your inbox, please subscribe at this link. Or you can subscribe to Money Stuff and other great Bloomberg newsletters here. Thanks! [1] Isn't it tempting to give it a meaningful explanation? One possibility is that Hertz is just worth a lot more than its debts and the stock really is valuable. This is not impossible; the sudden collapse in travel and used-car prices that led to Hertz's bankruptcy filing also seems to have reversed quite quickly, so you could actually imagine Hertz saying "never mind, we're not bankrupt, everything is fine." The problem with that theory is the bonds trading at 40 cents on the dollar, implying that Hertz is not, in fact, fine. You could say "well the bondholders are wrong and the shareholders are right," but that is sort of unsatisfying, because why not buy the bonds? "The stock is hard to borrow and retail investors are nuts" feels like a better limits-to-arbitrage story than "the bonds are hard to buy and credit investors are pessimists," though both might be true. Another meaningful explanation would be that a share of stock is an option on the assets of the corporation, struck at the face amount of the debt; right now, for Hertz, that option is very out-of-the-money (the assets are worth less than the debt), and has a very short time to expiry (it's in bankruptcy right now!), but it hasn't expired and volatility is very high, so the option has a lot of value. That explanation is basically sensible in form, though I'm not sure you'd get a $5.53 price on any reasonable assumptions. [2] Fun fact: Hertz didn't think it actually needed the judge's permission to sell the stock. It asked for permission only "out of an abundance of caution." (See paragraph 18 of its motion.) The point here is that the whole thing is so unusual that no one knows the rules. "Hey what if we sold stock," Hertz asked, and its advisers were like "uh I guess that would bring in some money," and then Hertz was like "how do we do that," and the advisers were like "we should probably … ask … someone?" Just feels like the sort of thing where you'd want to get someone's permission, you know? [3] Apparently they sold some stock before the SEC called? "Hertz didn't say in its filing how many shares Jefferies managed to sell, if any, before the car renter pulled the plug on the deal." [4] We've talked about this a few times, in connection with the WeWork initial public offering, where the much-criticized IPO prospectus simply didn't explain the company's business in the way that its private investor presentations did. "U.S. securities regulation requires certain disclosures and prohibits others," I wrote, "so the IPO prospectus is long and prosy and full of details while at the same time omitting a lot of what investors might actually want to know to value the business."  [5] There are prospectus-delivery requirements in ATM offerings, though I don't know how often they result in an actual prospectus actually being delivered to actual purchasers. But there are no prospectus-*reading* requirements.  [6] Except that Hertz's stock still trades, and if you don't like retail shareholders buying it from Hertz you shouldn't *love* them buying it from each other.  You received this message because you are subscribed to Bloomberg's Money Stuff newsletter. 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