U.S. regulators say the hoax that whipsawed Avon Products Inc. last month was hatched by a man in Bulgaria who had fooled Wall Street twice before with similar ruses.
Nedko Nedev, 37, hoodwinked the stock market from Sofia, the SEC said. Over the past three years, he allegedly did the same thing with Tower Group International Ltd. and Rocky Mountain Chocolate Factory Inc. Each time, he bought shares just before sham entities filed fake takeover announcements on the Securities and Exchange Commission’s public filing system, the regulator said.
Avon shares surged 20 percent May 14 after a regulatory filing purported to show a bid three times Avon’s stock price. Avon said there was no such offer, and the stock fell to earth.
The Avon release contained typos, extra spaces and even two different names for the faux-private equity firm, PTG Capital Partners Ltd. Still, Nedev managed to make $5,000 off the scheme, according to the SEC.
“It is highly unlikely that Nedev’s trading was mere coincidence,” the agency said in a lawsuit filed Thursday in Manhattan federal court. “There is no indication that PTG Capital is a legitimate company organized for any other reason than the stock manipulation.”
The SEC described a more elaborate scam than many at first suspected. The scheme included manipulations in two other stocks dating back three years, it said.
On May 14, a dummy PTG Capital release said the firm had made a tender offer for Avon, and trading volume in the beauty products company spiked 448 percent in one day. PTG, “to the extent it actually exists,” had gained access to the SEC’s EDGAR system around April 21, the agency said.
Almost exactly a year earlier, on May 13, 2014, an entity called Euroins Insurance Group issued a bogus release claiming it had offered to buy Tower Group, sending shares surging 32 percent, the agency said. Nedev earned $23,368 on the Tower Group “offer,” it said.
And on Dec. 28, 2012, a firm calling itself PST Capital announced what turned out to be a make-believe offer for Rocky Mountain Chocolate, and its shares jumped 23 percent after the close of trading, the SEC said.
Nedev was behind them all, the SEC claimed.
Kiril Boshov, the chairman of Eurohold Bulgaria AD, which controls Euroins, denied any wrongdoing in an e-mailed response to Bloomberg questions. He also said the company has had nothing to do with Nedev.
“The tender offer from EIG towards Tower Group is official and has been submitted according to all regulatory requirements and has been announced in all major financial media,” Boshov said.
Efforts to locate Nedev in Sofia were unsuccessful. Stoyan Karadashki, whose son lives in the second-floor apartment at the address given for Nedev in court documents, said no such person lived on the premises.
He added that letters addressed either to Nedev or his companies frequently are delivered.
Nedev “or others working with him attempted to manipulate the equity price” by issuing “fraudulent tender offers or press releases,” according to the complaint.
Regulators said they used parallel trading analysis “to connect the dots” and track down the defendants.
“Even when traders attempt to hide behind proxy servers, false filings and phony foreign entities, we are able to quickly identify patterns and relationships to focus our investigation and identify who is behind the manipulative trading,” said Daniel Hawke, head of the SEC’s market abuse unit.
Neither Nedev nor a lawyer for him or the firms could be immediately located for comment. A voice-mail message left with Tower Group after regular business wasn’t immediately returned.
Bryan Merryman, chief operating officer of Rocky Mountain Chocolate, didn’t immediately respond to a voice-mail message left at his office after business hours seeking comment on the SEC’s case. Lindsay Fox, a spokeswoman for New York-based Avon, also didn’t return a voice-mail message left at her office.
The SEC, which alleged violations of federal securities laws, obtained an emergency freeze on two U.S. brokerage accounts connected to the alleged schemes, said Andrew Ceresney, head of the SEC’s Enforcement Division.
The case is SEC v. PTG Capital Partners, 15-cv-04290, U.S. District Court, Southern District of New York (Manhattan).