STEVE INSKEEP, HOST:
I'm Steve Inskeep with some big news that spread around the business world yesterday. The cosmetics company Avon was being bought. That word sent the company's shares way up, and then word spread that it was all a hoax. Whoever carried it out used tools provided by government regulators. NPR's Jim Zarroli reports.
JIM ZARROLI, BYLINE: The hoax got underway when a company calling itself PTG Capital Partners filed a document on Edgar, the Securities and Exchange Commission's database. The document said PTG was bidding $18.75 a share for Avon, a huge premium over what the company's stock had been selling for. James Cox is a professor of securities law at Duke University.
JAMES COX: There were several grammatical and spelling mistakes in the posting, which may suggest somebody from outside the United States for which English was, at best, a second language.
ZARROLI: Shares of Avon jumped as much as 20 percent. Then Avon came out and denied that it had received an offer, and soon it appeared that PTG Capital Partners was a fake company. It was incorporated on a remote island in the Indian Ocean, and a Texas law firm listed on the document doesn't exist.
COX: You know, fortunately the matter was discovered quickly, but in the meantime, a huge number of shares traded hands, and somebody made a lot of money.
ZARROLI: The incident appeared to be a twist on the classic pump-and-dump scheme in which somebody artificially inflates the shares of a company then sells them at a huge profit before they crash. Mercer Bullard of the University of Mississippi Law School says it's unusual for this to happen to such a big company or on such a big scale.
MERCER BULLARD: The fact that there was a 20 percent increase was pretty stunning. That may have had something to do with the fact that it was first published on Edgar.
ZARROLI: The Edgar database is widely used and trusted by investors, and the fact that somebody could plant a fake document on the site suggests it's a lot more vulnerable than many investors thought. The SEC declined to comment about the incident yesterday. Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.