There was no word Friday from investigators on who might have been behind a false takeover bid that made Avon Products shares spike 20 percent Thursday, an episode that raised concerns about the Securities and Exchange Commission’s filing system.
Even after the hoax was made clear Thursday, Avon shares still closed up 6 percent. The stock gave up 1.7 percent Friday, closing at $6.95. But that was still above its pre-hoax level of about $6.50, a sign some investors are holding out for a real buyer.
The filing Thursday, which showed up on the SEC’s Edgar filing system, purported to show a bid for $18.75 a share — about three times Avon’s stock price at the time.
In 25 minutes, $91 million worth of Avon shares changed hands, Bloomberg calculated. And then Avon said there was no such offer and the SEC began reviewing the incident.
The filing, reported by the SEC’s online database, was by PTG Capital Partners, supposedly a British firm, but it and and the legal counsel it listed were nowhere to be found. The document included errors, such as referring to the purported bidder as “TPG” twice. There is a real TPG Capital, a private equity firm that has done deals with Avon in the past.
Securities regulators were quiet Friday but are thought to be trying to determine whether it was an attempt to manipulate the market, in addition to seeking the identity of who was behind the filing.
Before the filing by PTG Capital, there was no smoking gun in the options market related to Avon shares, said Henry Schwartz, president of Trade Alert, an options analysis firm. An unusual surge in options trading can be a tipoff that some traders believe market-moving news is about to become public.
Whether or not market manipulation was a goal, the incident raises questions about the security of the SEC’s Edgar database. Edgar is used by both publicly traded companies and money managers to make official regulatory filings.
“Investors and traders assume that Edgar is accurate because it is associated with the SEC,” said Erik Gordon, a professor at the University of Michigan Ross School of Business. “The SEC will have to reconsider what lengths it should go to in order to provide a high level of assurance that filings are real.”
The agency provides a unique identification number and password to every company and investment firm that uses the system to submit online filings. To obtain approval to submit a filing to the database, a prospective filer must complete a notarized form that asks for things like the name of the business, a tax identification number, address, phone number and email address.
But is not clear what the SEC does to verify the information provided.
“Under the federal securities laws, filers are responsible for the truthfulness of their filings, and they are subject to enforcement actions when they are false or misleading,” the SEC said in an emailed statement.
The agency added that it receives about 4,000 filings to the Edgar system each day and makes them automatically available to the public.
The statement did not address what vetting the SEC does of applicants. The regulatory agency does not do much verification of applications other than making sure the form is filled out properly and notarized.
The bid, though bogus, also spotlighted Avon’s status as a takeover candidate. The cosmetics company, which has suffered three straight years of losses and declining sales, could still be worth more than its valuation suggests, said Sachin Shah, a merger arbitrage and special situations analyst for Albert Fried & Co.
“Maybe not $18.75, but the valuation supports much higher than where it’s trading at,” he said. “That said, we’d have to see a legitimate buyer.”
The New York Times and Bloomberg News contributed to this report.