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Grassley asks SEC© to answer for filing hoax

Publisher: Marketwatch
Author: Francine McKenna

A key senator has asked the Securities and Exchange Commission to explain how fake firms can file false notices on the agency’s electronic filing system that move share prices.

Sen. Charles Grassley, an Iowa Republican and chairman of the Senate Judiciary Committee, sent the SEC a letter asking how fake firms can file false notices on its Electronic Data Gathering, Analysis and Retrieval system, that’s more commonly known as EDGAR.

Grassley was reacting to a hoax that caused shares of Avon Products which had opened trading on May 14 at $6.71, to jump by more than $1. A firm calling itself PTG Capital Partners used EDGAR© to file notice it planned to acquire Avon for $18.75 per share. PTG Capital Partners, and the lawyer who signed its filing, do not exist.

Beginning in 1996, all public domestic companies were required to make their filings using EDGAR, which is supposed to perform automated collection, validation, indexing, acceptance, and forwarding of all submissions including notices of tender offers.

It’s the validation part that’s not working, says Grassley.

This was not the first time EDGAR© accepted a filing hoax. In 2012, “another apparently nonexistent investment firm made a buyout proposal” for Rocky Mountain Chocolate Factory according to the letter. Grassley asks the SEC© to explain how such hoaxes can occur and what the regulator is going to do about them. He’d like to know how often fake filings occur and what it would cost to improve the front-end verification of new EDGAR© users and back-end validation of any suspicious filings.

After the Avon incident, the SEC© responded that EDGAR© functions simply as a repository for information and that the information should not be relied on as accurate. That bothers Grassley, in particular since the Avon and Rocky Mountain fake filings are still in the EDGAR© database and available to confuse the public.

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