WASHINGTON, May 28 (Reuters) - A U.S. senator is asking federal securities regulators to review their online government filing system for company financial statements after fraudsters used the site to file a phony takeover bid for Avon Products Inc .
In a May 27 letter released on Thursday, Iowa Republican Senator Charles Grassley told the U.S. Securities and Exchange Commision he was concerned the incident exposes a “systemic vulnerability” within the SEC’s EDGAR online repository.
“This pattern of fraudulent conduct is troubling, especially in light of the relative ease in which a fake posting can be made,” Grassley wrote. “A review of standards for posting on EDGAR is called for.”
An SEC spokeswoman declined to comment on Grassley’s letter.
Earlier in May EDGAR was used to file documents by purported acquirer PTG Capital Partners making a buyout bid for cosmetics company Avon. The phony bid caused Avon’s shares to rise as much as 20 percent.
The EDGAR system used for filing financial statements is largely automated and is used by large and small companies.
Anyone wishing to file on EDGAR must apply through an online form to obtain a password, but typically, barring any major red flags, such applications are not deeply vetted.
The SEC does not fact check or make corrections to filings, and it receives about 4,000 filings per day.
Phony filings grab headlines from time to time.
In December 2012, shares of Rocky Mountain Chocolate Factory rose after a fake takeover bid was filed with the SEC.
Grassley said he wanted the SEC to explain what steps, if any, it takes to verify filings on EDGAR. He also wanted to know how many incidents of fake postings have occurred in recent years. (Reporting by Sarah N. Lynch)