In a certain sense, that person who submitted false filings to the Securities and Exchange Commission last month, proposing a fictional takeover of Avon Products, was doing the corporate filing community a favor.

He demonstrated yet again just how bad the SEC’s EDGAR filing database can be.

The good news is that the SEC believes it knows the responsible party: a Bulgarian national, Nedko Nedev, against whom the agency filed a complaint in federal court on June 4. The SEC says Nedev pocketed $5,000 in excess profits by selling shares of Avon he owned immediately after the bogus filings became public and caused Avon stock to shoot up 20 percent. (Although one investment firm connected to Nedev has already said prior questionable takeover filings were indeed serious bids.)

The discovery that EDGAR was used to manipulate stock prices comes at an interesting time. The SEC has promised to modernize the 30-year-old EDGAR system as part of a broader review of its Regulation S-K disclosure regime. Oft-cited problems include data that is not easily searchable and doesn’t update in real time. The Avon affair adds another concern: flaws that can easily be exploited by fraudsters.

Among the most vocal proponents of an EDGAR overhaul is Commissioner Kara Stein. “In the last 20 years, technology has evolved, but EDGAR hasn’t changed much,” she said in a February speech. “EDGAR has not kept pace with technological advances.”

In May shortly after the Avon incident, the Business Roundtable, Center for Audit Quality, Financial Executives International, and the U.S. Chamber of Commerce submitted a joint letter to the SEC that outlined a variety of short-term improvements they say the Commission could act on quickly.

“One improvement would be making company searches easier, by adding the ability to have companies and their related ticker symbols appear while the user is searching, which would facilitate finding the ‘parent company’ more quickly,” says Cindy Fornelli, executive director of the Center for Audit Quality. “Being able to expand form search options, such as being able to search by one or more form item number or multiple form types, would further help users find the disclosure they are looking for.” (This is particularly important for Form 8-Ks which have multiple form item numbers.)

“EDGAR has to stop being a repository for plain-text documents and become a source for structured, searchable data. That means the SEC must change its disclosure system from document-based to data-centric.”
Hudson Hollister, Founder & Executive Director, Data Transparency Coalition

The groups are also developing longer-term recommendations, Fornelli says. One idea is to sort company filing search results in multiple ways, including form type or form series. Another is to have one screen with all of a company’s exhibits, rather than diving into individual company filings for them.

Hudson Hollister, founder and executive director of the Data Transparency Coalition, wants greater use of machine-readable data. “EDGAR has to stop being a repository for plain-text documents and become a source for structured, searchable data,” he says. “That means the SEC must change its disclosure system from document-based to data-centric.”

His group has worked with lawmakers on the Financial Transparency Act, a bill currently winding through Congress. It would require financial regulatory agencies to adopt consistent data fields and formats for the information they collect and to make this information publically available.

Maris Jensen, a former SEC analyst, has little faith in the latest modernization effort. Last year, she created a website,, that culls EDGAR data, indexes it, and publishes interactive data sets that can easily be repackaged in user-friendly charts and graphs. “Sadly, I think it’s unlikely we’ll see real progress until there’s leadership from the top,” she says. “Right now, there’s Kara Stein and only Kara Stein. The others talk about ‘embracing a culture of smart disclosure,’ but inaction speaks louder than words.”

Part of the problem, Jensen surmises, is “their standards are too low and they actually think their technology and data efforts are innovative.”

“An example is the financial statement data they recently started posting as a series of structured text files,” she says. “They’ve been working on this since 2012. They’re citing it in speeches and press releases and are obviously proud. But what do they think investors are going to do with datasets that are only updated four times a year?”

The SEC, Jensen says, already updates its internal database in real time; public datasets should be as well. “They’re processing each SEC filing and doing things like pulling out MD&A text from 10-Ks,” she says. “They could be opening up all this processed EDGAR data to the public in real time.”

Avon Schemes Calling

The overhaul may now also have to address the thorny matter of security flaws. The Avon plot used a Schedule TO-C filing, intended to announce tender offers, to drive up the stock price. In 2012, another fraudulent takeover bid for the Rocky Mountain Chocolate Factory was similarly announced on EDGAR. An investigation by the SEC linked both market manipulations to Nedev and investment firms he is associated with. He was also behind a similar fictitious takeover of Tower Group International last year, they say. (One of his affiliated investment firms says the Tower bid was legitimate.)


The following are among suggestions for consolidating and updating current EDGAR search features, offered in a recent comment letter by the Business Roundtable, CAQ, FEI, and the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness.

Show all available search options on one consolidated search page, rather than multiple screens.

Make company searches easier by adding the ability to have companies and their related ticker symbols appear, while the user is typing, to help narrow the search.

Expand form search options, including the ability to click multiple form types and ability to search form item numbers.

Improve the company search results page by adding the ability to sort results in multiple ways, such as by form type or form series.

Add the capability of accessing all of a company’s exhibits from one screen rather than having to go into individual company filings, with a way to identify which exhibits have been amended. Also, enhance the ability to use a search engine across the exhibits.

Highlight existing search options more clearly for users from main page.

Add a “save search to favorites” link or button to save customized searches.

Add a date range search option.

When viewing specific documents, create an outline or a navigation panel (e.g., on the left side of the screen) to allow users to jump to different sections or exhibits within a filing instead of going back to table of contents or filing detail page. Some preparers do use hyperlinks in some of their filings to help facilitate navigating the document, but most do not, the groups note.

Add functionality that allows users to download financial information in MS Excel over a period of time and have the ability to convert/download filings to Adobe and MS Word for printing and enhanced readability.

When performing a company search, add the ability for the parent company to come up first in search results. Currently, a company search, brings up a list of all company affiliates registered under Section 12(b) or (g) and the parent company may be far down on the list. It could either be identified through a flag, XML tag, or through the company ticker symbol identified on the search page.
Source: The Center for Audit Quality.

EDGAR fraud is not as uncommon as one might hope. Just ask Brian Balbirnie, founder and CEO of Issuer Direct, a North Carolina company that specializes in disclosure management systems and cloud–based compliance technologies. It is listed on the New York Stock Exchange’s MKT exchange.

“Out of the blue,” he explains, an Arkansas man he had never encountered went into the EDGAR database earlier this year, secured credentials, and posted a variety of Form 4s and Form 3s pertaining to Issuer Direct and three other small-cap companies all on the same day. Those forms are required of any director, officer, or owner with more than 10 percent of equity securities held in a company under Section 16 of the Securities Exchange Act.

For Balbirnie’s company, the filings, on behalf of the alleged owner of an extraction and mining company, falsely said the man was a director who owned $10 million in company stock. A subsequent filing added another $100 million in shares to his ownership claim. Wary investors drove Issuer Direct’s share price downward by nearly $4.

A review of EDGAR filings shows that at least seven companies have been the target of similar claims by the same man, as recently as last month.

Balbirnie—whose own research leads him to suspect that as many as a dozen companies a year are plagued by false filings of some kind—has both personal frustrations and broader concerns. If the SEC plans to promote the use of XBRL data sets by investors, fraudulent data will be part of that package. Trading algorithms will similarly find and act upon information in fraudulent forms.

“I’m surprised there aren’t more people taking short positions in companies, accumulating and waiting, then filing something like this and reaping the rewards of it,” he says.

A potential fix, Balbirnie says, is to reform the Form ID process that grants EDGAR access. Before a party can use the system, it must be issued a Central Index Key (CIK), used to identify corporations and individuals. In theory, a federal taxpayer identification number is required; in practice, a string of zeros will do the trick—a concession to filers whose capital raising deadlines can’t wait a month or more for the IRS to issue that number. That loophole is how fraudsters can easily obtain EDGAR credentials.

Balbirnie has recommended to the SEC that only registered filing agents be allowed to submit requests for codes. The burden of compliance checks and verification would fall upon these agents.

“Slow it down,” is his other advice. “We have seen codes issued within an hour. Nobody is reviewing anything in an hour. The process for issuing a CIK number needs to be improved and vetted a lot more than it is. There is nothing stopping anybody from applying for codes and filing a tender offer or Section 16 disclosure against a company like a Microsoft or Apple the day before earnings.”