NEW YORK (Reuters) - The top U.S. securities regulator on Thursday charged a Bulgarian man with being an architect behind hoaxes that fraudulently drove up share prices of Avon Products Inc and two other companies through bogus takeover bids.
The Securities and Exchange Commission sued Nedko Nedev, 37, of Sofia, and several corporate defendants in federal court in Manhattan, after a firm calling itself PTG Capital Partners offered on May 14 to buy Avon for $18.75 per share, a 181 percent premium to Avon’s closing price the prior day. The cosmetics company’s shares soared 20 percent following the offer.
Nedev and others allegedly made tens of thousands of dollars in Avon, Rocky Mountain Chocolate Factory Inc and Tower Group International Ltd by filing false tender offers on the SEC’s public Edgar database and issuing fake press releases, and then trading on positions they had taken.
Late Thursday, the SEC said a federal judge froze two accounts where suspicious trades took place, and which hold $2 million of assets. The SEC is also seeking civil fines and to recoup illegal profits.
Lawyers for the defendants could not be identified. A Henderson, Nevada-based firm housing one of the accounts did not respond to an email seeking comment.
The Avon hoax raised concern about the security of Edgar, where thousands of public companies and money managers make official filings.
PTG’s offer for Avon at first looked plausible because Avon has been a subject of takeover speculation, including by similarly named private equity firm TPG Capital.
But suspicions grew when it proved impossible to contact PTG, allegedly based in London, and readers noticed that PTG’s disclosures contained errors and mimicked language from TPG.
Senator Charles Grassley, a Republican of Iowa who chairs the Senate Judiciary Committee, last week expressed concern to the SEC about the “relative ease” of making fake Edgar filings.
On Thursday, he called it “reassuring” that the SEC may have found an Avon fraudster but remained concerned that “systemic problems” could cause a recurrence.
“Catching someone after the fact means the damage to the markets already has been done,” Grassley said.
The Rocky Mountain case stemmed from a bogus December 2012 tender offer from defendant PST Capital Group Ltd, also from London, to buy the confectionery company, causing its shares to rise 4.6 percent.
Meanwhile, Tower’s share price rose 32 percent in one day after a Sofia-based company calling itself Euroins Insurance Corp on May 13, 2014, offered to buy the insurance holding company. Bermuda-based ACP Re Ltd later bought Tower.
Nedev allegedly owned Avon, Rocky Mountain and Tower securities through a Sofia brokerage account before the bogus bids were made. The SEC also found parallel trades from Sofia through the Nevada account.
The case is SEC v. PTG Capital Partners Ltd et al, U.S. District Court, Southern District of New York, No. 15-04290.
Reporting by Jonathan Stempel in New York; Editing by Lisa Von Ahn and Leslie Adler