Avon Products Inc. (AVP, Financial), the second-largest direct selling company in the world, gained an upsurge in its share price by nearly 20% with a peak of $8 per share under the speculation of a much inflated takeover bid filed at the SEC by an unknown company. After wild speculation and a flurry of share trading, it has been revealed that the mysterious acquirer is seemingly an unknown private equity firm based out of a secluded Indian Ocean archipelago and the supposed offer priced at $8 million, almost three times the market value of the beauty products company at $2.9 million, was not genuine.
The fraudulent takeover bid is another in a series
As per the U.S. Securities and Exchange Commission, an alleged takeover bid of $18.75 per share of Avon was filed by a mysterious British company, PTG Capital Partners with a Texas-based law firm Trose & Cox before noon on May 14, 2015. As per the Edgar company database at SEC and CIA database, PTG is a privately held enterprise incorporated in a supposed uninhabited archipelago in British Indian Ocean Territory between Indonesia and Africa and registered in London. The UK Foreign Office claimed absence of any corporate entity in the mentioned territory.
The filing of the extravagant bid for Avon products, the American beauty and personal care products manufacturer and direct selling company, triggered one of the busiest days at Wall street with trading of almost 69.5 million shares even when the details were shrouded with mystery. Investigations into the filing content revealed a grammatically poor and misleading text where the company PTG was incorrectly named TPG in a number of places with material directly lifted from the actual Texan equity firm TPG. The Fort Worth-based prominent private enterprise TPG was quick to deny any involvement in the matter.
Avon representatives officially denied receiving any such offer or the existence of the bidding companies while no official communication has been received by the bidders.
With no valid credentials of the bidders and initiators of the subsequent dramatic $2 million Avon share trading, the cautious market halted its stock three times on May 14 to finally close it at $7.6 at the end of the eventful day.
It appears that the fifth largest beauty company in the world has fallen prey to an extensive scam of fraudulent takeover offers. In January 2012, Eastman Kodak Co (KODK, Financial) and American Airlines (AAL, Financial) parent AMR Corp had experienced a similar suspicious tender offer while the candy giant Rocky Mountain Chocolate Factory (RMCF, Financial) saw a comparable surge in share prices in December 2012 after a supposed takeover offer.
Current situation at the SEC
In the face of the fact that the phantom bid has exposed a possible flaw in the securities filing system, the U.S. Securities and Exchange Commission is tight-lipped as of now. As per the SEC website, the securities filing mechanism is mostly automated with minimum intervention of the SEC staff in a filing process. The filing on Edgar is solely done by the filer by applying for login credentials with an online form. With a large number of online applications and nearly 4,000 filings every day, there is almost no check or review done to check the veracity of the filers or the filing content. The absence of a pre-filing review for legitimacy seems to be a glaring hole in the securities filing process.
