The US Securities and Exchange Commission has sued PTG Capital, the possibly fake company that made a bogus bid for Avon in May, causing an almost 20 per cent surge in the cosmetics company’s share price.
Bulgarian resident Nedko Nedev and other entities tied to Bulgaria, are also accused of submitting fake bids for insurance company Tower Group International and Rocky Mountain Chocolate Factory, according to the SEC lawsuit filed on Thursday in a US district court.
They also allegedly issued fraudulent press releases, which allowed them to sell their shares in those companies at artificially inflated prices, the SEC said. It alleged that Mr Nedev’s scheme had netted him just $5,000.
The lawsuit appears to solve the mystery of what was behind the $8.2bn bid for Avon. In its SEC filing in May, PTG Capital claimed to be a private equity firm based in London and incorporated in the British Virgin Islands.
“There is no indication that PTG Capital is a legitimate company organised for any other reason than the stock manipulation scheme described here, and PTG Capital (to the extent it actually exists) is operated from Sofia, Bulgaria,” the SEC suit said.
The fake bid also exposed potential flaws in the SEC’s filing system, which companies can access after applying to receive certain codes. The SEC said at that time that under securities laws, the responsibility for the “truthfulness” of filings lay with the filers.
In May 2014, Euroins Insurance Group issued a fraudulent press release announcing an offer for Tower Group, which caused a 32 per cent surge in the company’s stock, the SEC said. The SEC did not name Euroins as a defendant in its lawsuit.
In December 2012, an entity named PST Capital Group filed a tender offer for Rocky Mountain, which caused a 4.6 per cent jump in the company’s shares, the SEC said. But there is no indication that PST Capital, which is named in the SEC lawsuit, is a legitimate company and to the extent it actually exists, it is operated from Sofia, the regulator said.
Mr Nedev, 37, used a brokerage account held in the name of Strategic Capital Partners Muster Limited to trade stock and held positions in Avon, Tower Group and Rocky Mountain before the fake tender offers, the SEC said. A brokerage account in the name of Strategic Wealth Investments also held positions in the three companies and took advantage of the hoax bids.
It is unclear whether Mr Nedev has a lawyer and he could not be reached for comment.
Strategic Capital is also located in Sofia while Strategic Wealth is located in the US in Nevada, the SEC said.
The SEC is seeking a permanent restraining order prohibiting the defendants from making fake bids, in addition to obtaining the profits made by those offers and civil penalties.
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