Coverage: Avon shares climb on fake filing
A fake offer for Avon, which sent the shares soaring, is calling into question the Securities and Exchange Commission’s filing system.
The New York Times had this story by Matthew Goldstein and David Gelles with the details:
The federal government’s system for filing securities documents may not be as secure as many on Wall Street assume, considering what appears to have been a fake bid on Thursday for Avon Products.
The bid, which was reported on the Securities and Exchange Commission’s online database, points to a hole in the plumbing of the United States’ securities market.
The filing, from what was supposedly a British investment firm, caused an immediate sensation after news wire services flashed headlines of the offer to their trading customers. Shares of Avon, which had opened the day’s trading at $6.71, jumped by more than $1.
According to Liz Hoffman, Gillian Tan and Dan Cimilluca of The Wall Street Journal, Avon was treating the announcement as a fake:
Avon said it hadn’t received such a bid and hadn’t even been able to confirm that PTG Capital existed. A person familiar with the matter said the company was treating the offer as a hoax.
The SEC is reviewing the filing, another person familiar with the matter said. It was the first known filing from PTG Capital.
Efforts by The Wall Street Journal to reach PTG Capital or verify its existence were unsuccessful. The firm isn’t registered with the Securities and Exchange Commission. An initial call to the contact number listed in the SEC filingwent to voice mail, which said the subscriber was either on the phone or hadn’t set up a voice-mail account. Twelve minutes later, the voice mail said the caller had reached PTG Capital.
The listed address, 125 Old Broad Street, formerly housed the London Stock Exchange. It is now an office tower.
The Fort Worth, Texas, law firm listed in the filing, Trose & Cox, also couldn’t be reached. The phone number listed for the firm rang through to “Atrium Executive Business Centers,” and a search of Texas business records turned up no evidence of the firm’s existence.
Avon’s shares fell from their highs but ended up 6% on the day at $7.07. Investors have been eager for news that Avon might find a buyer. The Wall Street Journal reported last month that the company is exploring options, including a sale, after a turnaround effort bogged down.
The Reuters story Siddharth Cavale and Sinead Carew said that SEC filings are generally automated and not reviewed, reveeling a huge gap for people to manipulate stocks:
Edgar filings are “largely automated,” the SEC’s website states, noting that the information is provided by filers and the SEC staff “generally does not correct errors” or intervene in the process. The staff will consider requests to correct errors in rare and unusual situations,” it adds.
Whoever wishes to file on Edgar can apply for a password by submitting an online form, said Scott Kimpel, a partner at Washington, D.C. law firm Hunton & Williams who previously worked at the SEC.
“Unless you write on it, ‘My name is Mickey Mouse and I live on the moon,’ they approve it. There is no review. There is no way for them to tell if someone is in fact who they say they are,” said Kimpel, noting the large number of filings on the website every day.
Bloomberg reported that the regulator’s enforcement division is reviewing the legitimacy of the offer, citing a person with knowledge of the matter.
According to the SEC’s Edgar company database, PTG is incorporated in British Indian Ocean Territory, an archipelago between Africa and Indonesia with no civilian population, according to the CIA’s factbook. A spokesman for the UK Foreign Office said there is no corporate register in this territory.
Avon’s stock was halted three times on Thursday due to volatility after the initial reports.
The Bloomberg story by Larry Reibstein and Lindsey Rupp said that the filing was suspicious and the SEC was reviewing its legitimacy:
The filing was also suspicious, and not only for the extra spacing between some words. In a boilerplate section describing the firm’s business, its name was written as “TPG” rather than “PTG.” TPG Capital is real, a longtime private equity firm that manages about $67 billion in assets.
The presumed perpetrators apparently borrowed more than just TPG’s name. The phrasing in the filing was similar to wording previously put out by TPG Capital. In 2010, TPG acquired Avon Japan from the cosmetics company. Owen Blicksilver, a TPG spokesman at Owen Blicksilver Public Relations, said that TPG hasn’t bid for Avon and has no connection to PTG.
About 90 minutes after the filing broke, the SEC was said to be reviewing the legitimacy of the offer, and Avon said in an e-mailed statement that it never received a takeover bid from PTG and couldn’t confirm that such an entity exists.
That Avon would receive a takeover offer would not be surprising. The company has posted three straight years of losses and declining sales, putting pressure on the company to explore its options. Linda Bolton Weiser of B. Riley & Co. had estimated that the entire business could fetch a takeover valuation of about $6 billion.
“Someone walked away with a big pot of money,” said Skip Aylesworth, a portfolio manager at Hennessy Funds in Boston. “I wouldn’t be surprised if part of the volume is people saying ‘thank you very much, Avon,’ and moving on.”
That’s a crazy day for Avon. There has been much speculation about Avon being acquired, and many investors were likely excited that there was a potential deal. It also points out a huge hole that regulators will need to investigate. With Edgar being automated and news headlines nearly instantaneous from that, there’s no room for thought or verification. And as we saw today, that has serious consequences.