Retail Traders Flout Legal Logic by Buying Up Bankrupt Stocks

- Advertisement -
- Advertisement -
- Advertisement -
- Advertisement -

Investors are piling into stocks of bankrupt companies, wagering against a court process that routinely wipes out shareholders.

Car renter Hertz Global Holdings Inc., oil driller Whiting Petroleum Corp. and retailer J.C. Penney Co. are among companies that have seen their shares more than double in recent trading sessions despite being in Chapter 11 bankruptcy, a process that allows companies to keep operating while working out a plan to repay creditors.

“I have always thought people have a psychological urge to buy stocks at a low price,” said Kirk Ruddy, a former bankruptcy claims trader. Retail investors may be buying big names they recognize without realizing how rare it is for shareholders to get anything back in bankruptcy, he said.

“If you look at the markets in general, people don’t know where to put their money. They are like ‘Hey, I’m going to try that $1 stock,”’ said Ruddy, who now works in sales for SC Lowy Financial HK Ltd.

On Tuesday, J.C. Penney shareholders will press a federal judge to appoint a court-approved committee to represent them in the bankruptcy case. Getting official status would mean forcing the retailer to pay for lawyers and financial advisers who would work on behalf of shareholders. Judges rarely grant such requests for two reasons: The legal fees can be expensive and under the so-called absolute priority rule, all the debt of a company must be paid before shareholders can collect anything.

Some of the rally in bankrupt shares might be attributable to short covering, when traders who have bet against a company close their positions by re-buying shares, lifting prices. But the rally could also be fueled by amateur traders, bored in lockdown and looking for a quick buck, using platforms such as Robinhood. The number of Robinhood users holding both Hertz and Whiting Petroleum shares surged after the companies filed for bankruptcy, according to Robintrack, a website unaffiliated with the stock trading platform that uses data to show trends.

This article was originally posted on finance.yahoo.com/news/.
Home of Science
Follow me

Latest posts by Home of Science (see all)
- Advertisement -

Discover

Sponsor

Latest

Who is Deborah Birx — the doctor whose reaction when Trump suggested people inject disinfectants has gone viral?

For those who haven’t been tuning in to the daily White House coronavirus press briefings over the past several weeks, the woman now going...

Find Out How to Buy Amazon Prime

It has been a few years since Amazon Prime arrived in the retail industry and it still hasn't been completely taken over by Amazon....

Support Billie Eilish

Support Billie EilishI recently read that Billie Eilish, who's from Lubbock, Texas, is an activist for the rights of the disenfranchised. She's performed...

What Is So Great About Billie Eilish?

Billie Eilish is an experienced Canadian TV presenter and journalist who present at CBC Television. Her first season as a presenter on CBC Television...

The Fed suggests the worst of this crisis is over

But that the road to recovery remains very long and challenging. For over a month now, we’ve heard from economists and strategists that the worst of the pandemic-induced economic...
Home of Science
Follow me
Latest posts by Home of Science (see all)