I suspect that the SEC is stumping around this morning, looking like the troll in Harry Potter that just got knocked about by its own club.

Thanks this website. #Trolling
Thanks this website. #Trolling

The story, in case you missed it:

  1. Avon, the beauty product manufacturer and direct-seller-through-middle-aged-housewives across the world, has had a languishing share price for some time now.
  2. It also has a “SELL” rating wherever anyone bothers to rate it, mostly due to being not profitable by greater magnitude with each passing year.
  3. But yesterday, the SEC received a filing to say that PTG Capital Partners in London had placed an offer for Avon stock at triple the then-going share price.
  4. Of course, the “We made an offer on Avon!” filing also included these two sentences: “This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities. No tender offer for the Company’s shares has been made at this time.”
  5. So much like Schrödinger’s cat, the SEC filing about the Avon offer both was and was not a filing about the Avon offer.
  6. Never mind that the legal firm mentioned in the filing does not exist, nor that PTG misspells its name at least twice in the filing, nor that the whole letter is an apparent triumph of dyslexia over spellcheck.
  7. Also, never mind the fact that PTG or TPG or whoever-they-are don’t apparently exist on the internet, and that anyone else with a passing reference to those initials has denied involvement. how very dare you
  8. Even Avon is more confused than it was before, because it didn’t receive any offers (although I’ll bet they’re rather anxiously hoping that their offer letter just got caught by the spam filter, so please resend it, please).

Unfortunately, we live in a world of mysterious algorithms. And I’ve spoken about this before*, but I think that one of the problems with “market efficiency” is that we view is as an absolute range – where you have complete informational efficiency on one end (where everyone knows everything about a stock), and zero informational efficiency on the other (where no one knows anything). But I think that there is something beyond perfect informational efficiency – a mysterious other-side, through the looking glass, where there is more information than there should be, some of which is false, and now you need to try and tell the difference.
*but I can’t quite remember where – this will be post 933, and I’m starting to lose track.

And immediately after the filing, the algorithmic traders charged straight into the twilight zone, and started buying up Avon shares on the false assumption that any information filed at the SEC must be true.


Thanks Matt Levine
Thanks Matt Levine

Algorithmic bad assumptions aside, I think that we can safely assume that whoever lodged the SEC filing has made some money. Probably somewhere in that momentary white line drop just after the first rise.

After they were done, the price leapt back up again until trading suspended for 10 minutes because that’s what trading circuit-breakers are there for. Then the human traders had a chance to read the report in person, and important questions were asked such as:

“Where are these people in London and oh-look-this-is-there-first-time-making-an-offer-how-cute-for-them and actually, why aren’t they answering their phones; and wait, more importantly, why is it that the one person who answered a phone had no idea who/what we’re talking about?”

The SEC is now investigating. So we should expect to see someone arrested in, oh, five years or so. And how very awkward that they’re having to investigate their own filing system for having been frauded.

In the meantime, I suspect that whoever did it might be related to the guy from Florida who tried to cash a blank check for $368 billion in order to start an underwater Italian restaurant that would seat “30 million eaters” at once.

Thanks moron.com
Thanks moron.com

Of course, that story is probably a hoax as well – because it mentions that in addition to the forgery charge, he was charged with “unlawfully carrying Chinese throwing stars and possessing bath salts”. I’m just not sure that it’s illegal to possess bath salts. But then again, it is Florida.

Two other posts on Avon:

Happy Friday.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.