Avon hoax exposes SEC filing risk

The regulator’s filing policies are being criticized after a nonexistent private equity firm published a fake offer to buy cosmetics company Avon on the EDGAR platform, causing share prices to soar.

The filing policies at the US Securities and Exchange Commission (SEC) are being questioned after a nonexistent private equity firm calling itself PTG Capital Partners used the regulator’s EDGAR platform to file a document stating it had made an offer to acquire cosmetics company Avon Products for $18.75 per share.

Avon shares had been trading at $6.50 prior to the filing, but shot up nearly 20 percent within a few hours before the New York Stock Exchange halted trading, according to the Wall Street Journal. Avon is treating the filing as a hoax, and issued a press release stating it had not received any offer or other communication from PTG and has not been able to confirm that the firm even exists.

The boilerplate in the filing claims PTG is “a global private equity investment firm, focused on leveraged buyout, growth capital and leverage capitalization, investment in distress companies and turnaround situations” but twice refers to PTG as TPG, and mimics language from TPG Capital’s own boilerplate. 

EDGAR lists PTG’s state of incorporation as British Indian Ocean Territory, an archipelago between Africa and Indonesia with no civilian population, according to the CIA’s world fact book.

The Federal Bureau of Investigation is now investigating the bid as a stock manipulation scam, the Journal reported. The filing, however, remains on the EDGAR database, and is the first item listed when searching Avon’s SEC filings.

The SEC does not verify if a filer is a real entity before posting filings. To make filings, one only needs to provide EDGAR with a street address and an identification document signed by a notary, according to the EDGAR filing manual.

In response, the SEC issued a statement saying that “filers are responsible for the truthfulness of their filings, and they are subject to enforcement actions when they are false or misleading” and that they receive about 4,000 EDGAR filings daily, which are automatically available to the public.

This is not the first time a fake entity has claimed to be a private equity firm on EDGAR in order to manipulate stock prices. In December 2012, shares for Rocky Mountain Chocolate Factory spiked after a phony takeover bid was filed with the SEC. The firm responsible, PST Capital Partners, also claimed to be incorporated in British Indian Ocean Territory and stole boilerplate language from GTCR.