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Investors have spent almost $200mn trading theoretically worthless shares in Bed Bath & Beyond since the homewares retailer went bankrupt at the start of May, in the latest manifestation of the meme stock craze.

Bed Bath & Beyond was one of a handful of unloved consumer brands that became popular with retail investors during the coronavirus pandemic, with small investors arranging on social media to push share prices far above what most professionals considered rational.

Many of the companies used the enthusiasm as an opportunity to prop up their ailing businesses by issuing new shares, but Bed Bath & Beyond eventually filed for Chapter 11 bankruptcy protection earlier this year and was delisted.

Nevertheless, an average of 18mn of the company’s shares have changed hands each day on over-the-counter markets since then, according to Bloomberg data. Users of the Reddit website have been sharing highly speculative theories about possible turnround plans for the retailer.

The trading activity comes in an unexpectedly strong year for US stocks, with the Nasdaq Composite recording its strongest first half in 40 years despite a steep rise in interest rates, stoking concerns that the market has become frothy and valuations are too high.

“It’s an extension, almost a mutation, of the meme stock phenomenon,” said Anthony Chukumba, an analyst at Loop Capital Markets who previously covered Bed, Bath and Beyond.

“We can have real debates about the value of Tesla, or GameStop for that matter, because it’s still a viable company,” he said, referring to other stocks favoured by retail investors. “We can’t have a debate about the value of Bed Bath & Beyond because we know what that value is.”

In its initial bankruptcy filing in May, Bed Bath & Beyond reported debts of $5.2bn, compared with total assets of just $4.4bn. Shareholders would be last in line to receive any payout from a sale of its business.

More than 12,000 stocks trade on the US’s main over-the-counter exchange, which is operated by OTC Markets Group. The exchange is split into three markets, with the riskiest and most lightly-regulated stocks trading on the “Pink Open Market” — so-called because of the coloured pink sheets on which quotes used to be published.

When a company declares bankruptcy, it is delisted from the major exchanges and its stock trades on the pink sheets for a fraction of its original value. “These stocks will lurk around until the bankruptcy estate is settled, which can take months or years,” said Steve Sosnick, chief strategist at Interactive Brokers.

Whether shareholders receive anything at the end of bankruptcy proceedings depends on whether bondholders, who get paid before equity holders, can recover their money.

However, the bonds of Bed Bath & Beyond are trading at less than 2 cents on the dollar. “The bond market is telling you the stock is worthless,” Sosnick added.

As of last week the company no longer even owns the Bed, Bath and Beyond name. Online retailer bought its intellectual property for $22mn and has announced plans to relaunch the brand, driving its own shares up more than 60 per cent.

But that has not stopped enthusiasts pushing the original Bed Bath & Beyond’s share price up almost 300 per cent since its delisting. The average daily trade value over the past month was $4.8mn.

It is not the only recently bankrupt business to attract interest. Investors have also traded hundreds of millions of dollars worth of shares in collapsed lenders First Republic, Silicon Valley Bank and Signature Bank, though none matches Bed Bath & Beyond in popularity.

On the Reddit boards there is also an occasional mention of Hertz, whose shares plummeted when it filed for bankruptcy protection in 2020, but then rocketed during a retail trading frenzy, allowing it to fundraise and restructure.

The original meme stock surge in January 2021 was rooted in anti-establishment angst, with retail traders looking to destabilise hedge funds betting against fan-favourite stocks. Sudden increases in demand caused “short squeezes” that turbocharged the share price rally as hedge funds scrambled to cover their positions, with Melvin Capital becoming the highest-profile casualty. Now, however, retail punters are betting against each other.

“There are no institutions shorting Bed Bath at 25 cents,” Chukumba, at Loop Capital, said. “There’s no ‘man’ to stick it to any more.”

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