One thing about the Bed Bath & Beyond bankruptcy doesn’t add up and cries out for an investigation by the SEC or the Senate Banking Committee, or both. While the company was obviously cratering, it still managed to sell a lot of stock.

Someone promoted the stock sale, made money unloading it, and some poor suckers bought it. They took the bath.

Here’s some history. From its founding in 1971, Bed Bath & Beyond grew into an iconic retailer with 1,550 stores. It overexpanded, faced new online competition, and began a string of money-losing years in 2019. The pandemic only worsened things.

But instead of conserving its money for working capital, the company tried to keep its stock price up by continuing to buy back its own shares, while it borrowed still more money. Since 2004, it spent a massive $11.8 billion on stock buybacks, more than twice the debt it carried on its books.

The buybacks succeeded in pumping up its share price—for a time. For most of 2021, its stock traded at between $20 and $30 a share.

However in 2022, its losses mounted and the company began warning of a possible bankruptcy. The CEO, Mark Tritton, who had been brought in from Target in 2019, was fired in June 2022, and the chief financial officer was a suicide in September.

The company mounted a last-ditch plan to sell 150 stores, raise more money, and somehow return to profitability. As late as February 2023, Hudson Bay Capital, a hedge fund based in Greenwich, Connecticut, agreed to finance a new stock offering by buying up to $800 million worth of Bed Bath & Beyond shares. The stock price briefly rallied and then started falling again.

According to The Wall Street Journal, Hudson Bay ended up buying about $360 million of convertible preferred shares, which the hedge fund then converted to shares of common stock and sold on the open market. Hudson Bay must have taken a good look at the company books and seen a high-risk, possibly high-gain, play. It’s hard to believe that Hudson Bay sold at a loss, though even hedge funds do make mistakes.

But the dumb money that bought the shares must have taken the serious loss. With the company now in bankruptcy, Bed Bath & Beyond shares, which were trading at almost $6 as recently as February, are now trading at 12 cents.

Hedge funds are exempt from the kinds of disclosures required of other financial companies, so the reality is not public record. And Bed Bath & Beyond’s true condition was partly disguised by its stock buybacks.

Add to the list of needed financial reforms: more transparency for hedge fund operations; and an outright prohibition of stock buybacks.

No amount of SEC regulation can save dumb managers from their own folly. But at least we can provide better protection of investors (which is the whole point of the SEC).