Avon's stock was halted three times after reports of a possible acquisition of the cosmetics company.
A firm, calling itself PTG Capital, filed an offer with the Securities and Exchange Commission to buy Avon for $18.75 a share. It turned out that no record of such a company existed. Avon also said it had not received any offers or communications from such an entity, and it had not been able to confirm such an entity existed.
Just before it first shot up Thursday morning, Avon stock was trading around $6.60.
It turns out the SEC apparently does not check whether filers are accurate.
"Under the federal securities law, filers are responsible for the truthfulness of their fillings, and they are subject to enforcement actions when they are false or misleading," the SEC said in a statement.
Read More The Avon Hoax and what it means
H. David Kotz, former inspector general of the SEC, called it "pretty astonishing," noting that many people assume the SEC is not simply just passing on information.
"It's of great concern that potentially somebody could use a government database in order to perpetrate fraud and manipulate the securities market," he said in an interview with "Closing Bell."
However, the SEC is a bureaucracy, said Kotz, who is now managing director at Berkeley Research Group.
"The problem is if the SEC starts spending the time to validate this information, then you're going to have months of delays before the information is put on the public site. So then you won't have disclosure to investors," he said.
That said, he thinks something should be done.
While the FBI will look into the criminal aspect, the SEC "needs to look inward and make sure that they have a process in place that works much better than this," Kotz said.
—CNBC's Eamon Javers contributed to this report.