Why GameStop Couldn’t Take This Golden Opportunity to Save Itself | Smart Change: Personal Finance

Yet GameStop probably wouldn’t have been allowed to do a secondary stock offering during the short squeeze. The U.S. Securities and Exchange Commission probably would have prevented it from happening.

As precedent, consider the case of Hertz Global Holdings (OTC: HTZG.Q). Back in June 2020, the SEC took similar action in stopping a secondary stock offering from the car rental giant. Hertz had seen its stock jump despite filing for bankruptcy protection, leaving very little chance for shareholders to recover anything in the long run. Seeking to do as much as possible to ensure creditors would get a full recovery, Hertz sought to sell stock at its then-elevated price.

However, Hertz suspended plans for the offering when the SEC reviewed the transaction. A day later, Hertz pulled the deal, saying that not selling stock was in the best interest of the company. Months later, the stock still trades at elevated levels, but Hertz hasn’t moved forward.

No easy answer for GameStop

Doing a secondary offering also would’ve involved huge potential liability. No matter how explicit GameStop was in saying that its stock was unreasonably valued, investors would’ve come back and filed legal actions against the company when its share price dropped. The resulting hassle, expense, and bad reputation wouldn’t have served GameStop well.