Pentwater Capital has agreed to pay $650m to Avis Budget Group, bringing an end to a legal dispute centred on rapid trading activity during a period of extreme volatility in the US car rental company’s shares earlier this year, according to a report by the Financial Times.
The settlement follows allegations from Avis that the hedge fund profited from short-term trading gains during a dramatic surge-and-reversal in the company’s stock, which at one point rose more than 300% over a three-week period in April before sharply reversing.
According to a regulatory filing, the agreement remains subject to court approval and relates to claims under US “short-swing profit” rules, which are designed to prevent large shareholders and insiders from profiting from rapid in-and-out trading in a single issuer’s stock.
The dispute escalated after Avis management publicly linked Pentwater’s trading activity to heightened volatility in the share price. The company’s chief executive said during an April earnings call that heavy selling by a major shareholder appeared to coincide with a sharp one-day decline of around 38%, and pledged to pursue any profits deemed to have been improperly earned.
Avis subsequently filed a lawsuit under seal, arguing that Pentwater’s trading pattern — involving the accumulation and rapid disposal of millions of shares — had materially influenced market dynamics given the limited free float in the stock at the time.
Pentwater had previously indicated it was in discussions with the company regarding a potential return of gains associated with the trades in question. The firm did not comment following Monday’s announcement.
Market moves in April were amplified by a tightly held shareholder base, with analysts noting that Pentwater’s significant position reduced available liquidity in the stock. The resulting conditions contributed to sharp price dislocations, including a short squeeze as short sellers covered positions during the rally.
Avis’s underlying financial results showed $2.5bn in revenue and a net loss of $234m for the first quarter, with the stock already heavily shorted prior to the volatility spike.
The settlement comes after shares in Avis reacted positively in after-hours trading, reflecting relief that the legal uncertainty has been resolved. Market participants said the case underscores how constrained liquidity and concentrated ownership can exacerbate volatility in mid-cap equities, particularly when combined with crowded positioning in the derivatives market.
