Grassley airs concerns about fake SEC filings

Sen. Chuck Grassley (R-Iowa) is pressing a financial regulator on whether its online database of financial documents allows bad actors to artificially swing the market.

In a letter sent to the Securities and Exchange Commission, the Senate Judiciary Committee chairman pointed to a few cases where fake filings led to dramatic stock swings, asking if the “relative ease” with which documents can be posted, regardless of accuracy, could encourage market manipulation.

On May 14, a financial firm calling itself PTG Capital posted a filing on the SEC’s online database of financial filings indicating it was preparing to buy out Avon Products. The document led to a wild swing in Avon’s stock, jumping more than 10 percent on the apparent news.

{mosads}But while the buyout statement is still posted online by the SEC, it appears that there never was a buyout offer, or perhaps even a PTG Capital. Grassley said reporters were unable to contact anyone at the firm or a purported lawyer, and Avon announced it had not received a buyout offer. It’s unclear if PTG even exists.

The filing is currently being investigated by the SEC and the FBI, but Grassley said the filing revealed a “systemic vulnerability” that could allow bad-acting traders to move the market at their will.

At the heart of Grassley’s concerns is the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system, which provides a public home to millions of financial filings. The system automatically posts roughly 4,000 documents a day provided by registered filers, but Grassley said the “relative ease” with which someone can gain posting rights could encourage fraud.

To gain access to EDGAR, an individual or company needs to file an identification form and provide notarized documentation verifying that information.

The SEC declined to comment on Grassley’s letter, but at the time of the Avon confusion, the agency said the law stipulates that the filers are responsible for the accuracy of their documents, and can face penalties if they are not.

The supposed Avon buyout offer is also not the first time an imposter gained access to the SEC’s database. In 2012, another “apparently nonexistent” investment firm posted its interest in buying out the Rocky Mountain Chocolate Factory. The chocolate maker, like Avon, eventually confirmed that it did not believe the offer was legitimate, as it could not contact the firm purportedly making the offer.

Grassley wants to know exactly how many fake documents have made their way on to EDGAR, and what steps, if any, the SEC takes to verify accuracy of postings. He also wants to know if the SEC has explored ways to potentially verify that data, despite the heavy volume it receives each day.

This post updated at 1:06pm.

Tags Chuck Grassley Chuck Grassley EDGAR SEC filings U.S. Securities and Exchange Commission

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