The Securities and Exchange Commission sued PTG Capital in Manhattan federal court for faking an $8.2 billion takeover offer of Avon Products Inc. last month.
The hoax briefly sent shares of the ailing beauty company up more than 20 percent after PTG said it offered to buy the direct merchant for $18.75 a share.
Shares of Avon traded at $6.43, down 1 percent, shortly after the suit was filed Thursday morning. Trading volume in Avon’s stock was heavy immediately after the offer, increasing about 448 percent above an average day.
The offer was given credibility because it was revealed through an SEC filing and prompted a flurry of headlines and hand-wringing about security at the SEC and the possibility of manipulation.
However, the immediate illicit gain was alleged to be very small, less than $5,000.
Nedko Nedev, who held a brokerage account in the name of Strategic Capital Partners, and had a stake in Avon, was named as a defendant in the suit.
“Nedev and others executed this scheme to manipulate the prices of these securities so that he could sell his positions at artificially inflated prices,” according to the suit, which was posted online by Bloomberg.
Nedev is 37 and lives in Bulgaria, trading equities, options, contracts-for-difference, index futures and options on futures, according to the suit.
PTG Capital identified itself as a London-based company, but regulators said there is no indication it was a legitimate company organized for any purpose beyond the fraud. The company obtained a login for the SEC’s EDGAR reporting system and filed what is known as a Schedule TO-C, falsely declaring a tender offer for all of Avon’s stock.
According to the SEC’s account: Nedev has traded Avon stock through his Strategic Capital account since November 2012. By January, he had accumulated 26,000 Avon contracts-for-difference, which are frequently traded outside the U.S. and gave him the opportunity to lose or gain as the value of the beauty firm’s shares fluctuated. He also held 1,700 shares of the company’s stock.
Avon’s stock fell more than 22 percent between Jan. 6 and May 13, hitting Nedev’s account hard. His holdings were valued at a combined $182,820, representing a potential loss of $88,000.
About 25 minutes after the false takeover bid boosted Avon’s stock, Nedev sold 12,000, or nearly half of his contracts-for-difference, gaining about $4,879 more than he would have without the stock manipulation.
The trades were executed from Bulgaria.
The defendants were also accused of manipulating the stock prices of Tower Group International and Rocky Mountain Chocolate Factory.
Regulators requested that the court freeze the assets in Nedev’s Strategic Capital and Strategic Wealth accounts, prohibiting the destruction of documents related to the case.