Why are shares of General Motors trading up?

Posted Jun 1st 2009 2:25PM by Zac Bissonnette
Filed under: General Motors (GM)

Here's something you don't see very often: A company files for bankruptcy protection and its stock price soars.

Shares of General Motors (NYSE: GM) are currently trading up about 6% to just under 80 cents per share -- but moved as high as $1 in earlier trading.

But why? There had been reports that GM stockholders would get a 1% stake in the restructured company, but now it's expected that they'll get a well-deserved zero. In response to a Washington Post reader's question about what happened to shareholders a result of the bankruptcy, auto industry consultant William Holstein writes that "GM stockholders are expected to be wiped out. You get nothing for your shares. They become collector's items. "

On May 30th, Bloomberg reported that "GM's current stockholders would get no recovery from the new-entity asset sale, according to the May 28 filing, a change from an earlier plan that would've given them 1 percent of the new company."

So why does GM's equity still bear a $500 million market cap? I'm concerned that the company has failed to tell shareholders about where they stand -- for instance, not even bothering to formally disclose the bankruptcy filing. When you add in the fact that GM insiders were dumping stock in the weeks leading up to the filing, I think you have a pretty strong case for securities fraud, and a failure to give naive investors the information they need to make an informed decision.

But in the meantime, please, please, please do not buy any shares of GM. They are worthless.

Tags: General Motors, GeneralMotors, GM, GM stock, GmStock, inthenews