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From Securities Regulation Daily, June 4, 2015

SEC eyes Bulgarian trader said to be behind unusual tender offers for Avon, other firms

By Mark S. Nelson, J.D.

The SEC today filed a civil law suit against Nedko Nedev and several entities for allegedly engaging in a scheme that used false SEC filings and press releases to manipulate the price of shares in three companies in order to profit from selling those companies’ stock at inflated prices.  The SEC’s bid to shut down the scheme comes three weeks after Avon Products, Inc. publicly denied it was considering any tender offer, and just over a week after Sen. Charles E. Grassley (R-Iowa), Chairman of the Senate Judiciary Committee, called on the SEC to explain apparent flaws in its electronic filing system (SEC v. PTG Capital, June 4, 2015).

SEC Enforcement Director Andrew Ceresney praised the agency’s speed in bringing today’s court action. “Only three weeks after the manipulation of Avon stock occurred, this emergency court order keeps not only the alleged illicit profits from being transferred offshore, but preserves the SEC’s ability to recover substantial penalties.”

A freeze order obtained by the SEC affects nearly $2 million in assets held in two accounts. According to the SEC’s statement, its investigation into the matter is ongoing.

Europe-based trading. The SEC’s case accuses Nedev, PTG Capital Partners LTD (PTG), and PST Capital Group LTD (PST) of misusing the agency’s Electronic Data Gathering, Analysis, and Retrieval system (EDGAR) by filing false tender offer documents for Avon and candy maker Rocky Mountain Chocolate Factory, Inc. (RMCF). The SEC’s complaint also alleges that Euroins Insurance Group issued a press release falsely claiming that a tender offer existed for shares of Tower Group International, Ltd. (Tower Group).

According to the SEC, Nedev, age 37, ran the scheme from Bulgaria by employing entities incorporated in the British Virgin Islands (BVI), but located in London, U.K. (PTG, PST), and an account at Strategic Capital Partners Muster Ltd. (Strategic Capital), a firm which is incorporated in the BVI, but located in Sofia, Bulgaria. The SEC said it could not find evidence that PTG and PST are legitimate businesses. Nedev allegedly traded RMCF stock through a Strategic Capital account linked to a U.S. brokerage.

Moreover, the SEC implied that Nedev may have had ties to Nevada-based Strategic Wealth Investment, Inc. (Strategic Wealth) because a trading account there was opened by a Bulgarian citizen and followed traded patterns seen in Nedev’s Strategic Capital account. Whoever traded in the Strategic Wealth and Strategic Capital accounts allegedly used the same Bulgarian-based IP addresses to access them.

Daniel M. Hawke, Chief of the SEC’s Enforcement Division’s Market Abuse Unit touted the agency’s use of “parallel trading analysis.” Hawke said the SEC’s technology tools allowed its investigators to find patterns that helped lead to the individuals and entities the agency believes are responsible for the Avon, Tower Group, and RMCF trades.

The SEC’s complaint explained that Nedev used the Strategic Capital account to trade Avon stock and Avon contracts for difference, agreements used primarily outside the U.S., to gain from changes in the price of Avon’s shares. He also used this account to trade shares of Tower Group and RMCF. In the case of RMCF, the SEC noted that Nedev did not sell some shares, theorizing that the change in price may have been too small for him, or possibly because RMCF disclosed its worries about the supposed tender offer.

In each instance, the allegedly false tender offers and press releases significantly altered the share price and trading volume of Avon, Tower, and RMCF. As an example, the SEC pointed out that RMCF typically is very thinly traded (about 14,500 shares per day) as compared to other companies whose volume is in the tens of millions of shares each day. On December 19, 2012, RMCF’s stock had volume of nearly 120,000 shares.

The SEC is asking the court to permanently enjoin Nedev and the entities cited in the complaint from violating numerous federal securities antifraud provisions and the agency’s tender offer rules. The SEC also wants Nedev and the others to disgorge any illicit profits and to pay civil penalties.

Congressional oversight. Senator Grassley said today that he is pleased the SEC appeared to have tracked down those responsible for the Avon and RMCF tender offer filings. But he also said he eagerly awaits a reply from SEC Chair Mary Jo White to the letter he recently sent to her.

Last month, the senator asked White to explain how EDGAR could fail to identify what seemed to be false tender offer filings for Avon and RMCF. He reiterated those concerns earlier this week in a brief commentary, in which he said U.S. securities markets need to be safeguarded from those who would abuse them.

The case is No. 15cv04290.

Attorneys: Assunta Vivolo, SEC Philadelphia Regional Office, for the SEC.

Companies: PTG Capital Partners LTD; PST Capital Group LTD; Strategic Capital Partners Muster Ltd.; Strategic Wealth Investment, Inc.; Avon Products, Inc.; Tower Group International, Ltd.; Rocky Mountain Chocolate Factory, Inc.

MainStory: TopStory Enforcement FraudManipulation NewLawsuitsNews NewYorkNews

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