Hertz halted its plan to sell $500 million in common stock Wednesday pending a review from the Securities and Exchange Commission after the rental car company said the shares "could ultimately be worthless."
The company's stock stopped trading late in the morning after SEC Chairman Jay Clayton voiced his concerns.
"In this particular situation, we have let the company know that we have comments on their disclosure," Clayton said on CNBC's "Squawk on the Street." "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."
Hertz filed for bankruptcy protection May 22 after it was pummeled by a sudden halt in travel as a result of the coronavirus pandemic.
"With the severity of the COVID-19 impact on our business, and the uncertainty of when travel and the economy will rebound, we need to take further steps to weather a potentially prolonged recovery," Hertz President and CEO Paul Stone said in a news release after the announcement.
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Shares of the beleaguered company fell to about 55 cents the next day, sparking smaller retail investors to buy up shares, betting that the company would rebound, leading to profits later down the line.
By June 8, shares closed at around $5.53 — an 80 percent jump from where the company's stock price had been trading a day before its bankruptcy filing. At one point, shares in the company shot up to become the No. 1 traded stock on the popular investing app Robinhood, which is designed for casual investors.
Amid the spike in demand for its stock, Hertz won bankruptcy court approval Friday to sell up to $1 billion in new stock, which would allow it to capitalize on its recent rally. In its filing, the company warned that the new common stock could "ultimately be worthless" because of Hertz's bankruptcy filing.
But the SEC, which is responsible for reviewing bankruptcy proceedings for regulatory issues, raised concerns about the stock sell-off.
"What the SEC is saying is that just because there are aberrations in the market does not mean that you should take advantage of it," Josh Brown, CEO of Ritholtz Wealth Management, told CNBC on Wednesday afternoon.
Hertz, based in Estero, Florida, has about $1 billion in cash to support its operations and about $17 billion in debt with a fleet of about 500,000 cars that are financed through leases.
Hertz missed a $400 million lease payment in early May, leading the company to file for bankruptcy protection.