Fake SEC filings flourish
Online portal unvetted
A few hours after the New York market close on Feb. 1, an obscure Chicago artist by the name of Antonio Lee told the world he had become the world’s richest man.
The 32-year-old painter said Google’s parent, Alphabet, had bought his art company in exchange for a chunk of stock that made him wealthier than Microsoft co-founder Bill Gates, Berkshire Hathaway’s Warren Buffett and Amazon’s Jeff Bezos — combined.
Of course, none of it was true. Yet, on that day, Lee managed to issue his fabricated report in the most authoritative of places: The Securities and Exchange Commission’s Edgar database — the foundation of hundreds of billions of dollars in financial transactions each day.
Edgar for more than three decades has been the SEC’s accepted online interface for submissions of regulatory filings — with basically no questions asked. As many as 800,000 forms are filed each year, or about 3,000 per weekday. But, in a little-known vulnerability at the heart of American capitalism, the government doesn’t vet the submissions, and rarely even takes down those known to be shams.
“The SEC can’t stop them,” said Lawrence West, a former SEC associate enforcement director. “They can only punish the filer afterward and remove the filing from the system. So, caveat lector — let the reader beware.”
Congress has already raised the alarm. For its part, the SEC, which declined to comment, has said those whomakefilings are responsible for their truthfulness and that only a handful have been reported as bogus. Submitting false information exposes the culprit to SEC civilfraud charges, or even federal criminal prosecution.
For now, even the wildest claims are taken at face value. Consider Lee, who said his Alphabet shares were worth $3.6 trillion, almost two-thirds of the value of the 30 stocks in the Dow Jones industrial average.
While Lee’s fraudulent submission did not move markets, other cases have had real costs.
On May 14, 2015, Nedko Nedev, a dual citizen of the US and Bulgaria, filed an SEC form indicating he was making a tender offer to buy Avon Products, the cosmetics company.
Avon’s shares jumped 20 percent before trading was halted, and the company denied the news. A federal grand jury later indicted Nedev on market manipulation and other charges.
After the fraudulent Avon filing, Sen. Chuck Grassley (R-Iowa), the former chairman of the Finance Committee, told the SEC it must review its posting standards.
“This pattern of fraudulent conduct is troubling, especially in light of the relative ease in which a fake posting can be made,” Grassley wrote in a letter to the agency.
In response, Mary Jo White, who then chaired the SEC, said it wouldn’t be feasible to check infor- mation. Shenotedthat there wereon average 125 first-time filers daily in 2014, and the agency was studying whether its authentication process could be strengthened without delaying disclosure of key information to investors.
But the phony filings continued. One relied on the impersonation of Buffett’s Berkshire. In September 2015, a Singapore-based entity calling itself LMZ& Berkshire Hathaway Co. filed two ersatz regulatory forms disclosing 10 percent stakes in both energy company Phillips 66 and food giant Kraft Heinz. Berkshire is the largest shareholder of both companies. Aperson using the name Loreto M. Zamora signed the filing. This past November, the same filer struck again. The elusive Zamora made a fake takeover offer for Fitbit, the maker of the ubiquitous exercise-tracking bracelets. The supposed bidder, ABM Capital, listed a Shanghai address. Fitbit said it received no such offer. Berkshire didn’t respond to requests for comment.