In this episode, we spoke with Michelle Leder, founder of Footnoted and author of “Financial Fine Print”, to discuss her top red flags both in terms of content and “metadata” like the timing of the filing itself. We also spoke about what are some of the best practices for external reporting teams at corporations.
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- Name: Michelle Leder
- What she does: Michelle is the founder of Footnoted.
- Company: Footnoted
- Noteworthy: Michelle is also an author. Her book ‘Financial Fine Print: Uncovering a Company’s True Value’ came out almost two decades ago, and she started the site, Footnoted, to promote it. Soon, Michelle started posting about the red flags she found buried in their routine SEC filings. From 2008 to 2018, she ran a subscription-based service focused on actionable disclosures in the SEC filings. After a five-year break, she has returned with Friday Night Dump. ”We call it the Friday Night Dump because what it does is it looks at the filings that are made after 4:00 p.m. on a Friday,” explains Michelle.
Where to find Michelle: Mastodon｜Twitter｜Amazon
🎙️There are no accidents in SEC filings because filings are put together by well-informed teams. Additions and deletions could very well indicate material developments. ”Sometimes there’s a typo or a missing exhibit or whatever. Of course, there are accidents. I’ve caught things where instead of saying ‘subpoena,’ all of a sudden, [it’s] ‘subpoenas’ — that is important. So instead of a singular, it’s a plural: lawsuit to lawsuits.”
🎙️It’s not uncommon for companies to file amended filings. But if they do it repeatedly, that raises concerns about their stability. ”A crypto company has recently had to file its second amended 10-K since March of this year. That’s a red flag to me. […] If you can’t get it right the first time, that spells out bigger problems.”
🎙️Reading filings is like a game of pattern recognition. As such, it requires patience and attention so those working on them can spot irregularities and changes in the document submitter’s behavior. ”If a company routinely files after 4:00 p.m. on a Friday, chances are that’s their pattern of filing, and that’s okay. But when a company all of a sudden starts filing a lot of 8-Ks or not filing anything, I’m like, ‘Where did I see that?’ And after 20 years of reading filings, chances are I’ve seen that pattern before.”
A Red Flag in SEC Filings: Sudden Resignations
”A lot of times what you find on a Friday evening when I’m going through the filings is the person, he or she, resigned on a Monday, and we’ve reached the four days on the requirement for an SEC filing.
And so you learn about it on Friday evening that the CFO decided to leave on Monday. That’s the type of thing that is a big red flag. And especially if they don’t give any reason or use the standard language like, ‘There are no disagreements.’ It could apply to a director too. […] It doesn’t have to be the CFO. It could be another named executive, someone else [who is] significant like the chief legal officer.”
A Red Flag in SEC Filings: When a Company Has to File an Amended Filing
”Those are filings that have a slash and an ‘A’ at the end; that’s certainly a red flag. Now, everyone makes mistakes. I make mistakes probably every day. But, as I like to tell my son, some of them are big mistakes, and some of them are like, ‘Oh, I forgot to put the cheese stick in his lunch.’
But if you’re filing a 10-K, and you have to file an amended 10-K not just to correct a typo or a missing exhibit but to correct accounting information or revenue recognition, that’s a huge red flag.”
A Red Flag in SEC Filings: When Companies Are Consistently Late With Their Filings
”There’s a determined schedule. If you are an accelerated filer or a large accelerated filer, you have 40 days to get your Q in. You have 60 days to get your K in.
If you’re consistently late on that, or even if you’re just late once and there’s no reasonable explanation for why you’re late like, ‘Oh, we just completed this big merger, and it’s hard to merge the two companies’ backend systems,’ that can be a signal as well.”
[07:23] ”Everyone who reads filings carefully — after nearly 20 years of reading filings, the number of times I’ve seen a company disclose a disagreement is 0.002%. There are never any disagreements. The auditing firm steps down; no disagreements. A director steps down; no disagreements. An executive officer steps down; again, no disagreements. So, that’s a huge red flag.”
[15:45] ”Anything that makes your filing harder to read is not good. I’m all for making it pretty, but if it makes it harder to read, that’s a real problem.”
[17:24] ”Give as much information as you can. I think that a lot of companies take the approach of, ‘We’re gonna disclose exactly what we need to do and no more.’ […] There’s no reason to hide, especially when it’s publicly available information.”
[00:00:00] Michelle Leder: A sudden resignation, if someone resigns, like, that day, or even better, a lot of times what you find on a Friday evening when I’m going through the filings is the person, he or she resigned on a Monday and we’ve reached the four day period on the requirement for an SEC filing.
[00:00:17] And so, you learn about it on, you know, Friday evening that, “Oh, the CFO decided to, like, leave on Monday.” Or something like that. That’s the type of thing that I think is a big red flag.
[00:00:28] Intro: Hello and welcome to Signals by AlphaSense, where we hear thoughtful insights from business leaders, investors, and experts.
[00:00:39] Nick Mazing: Hello and welcome. You’re listening to Signals by AlphaSense. I’m your host, Nick Mazing. Today we’re joined by Michelle Leder. It’s a little bit hard to describe Michelle, let’s say, financial journalist+. So, you wrote a book on analyzing financial statements called Financial Fine Print. You’re relaunching Footnoted, which I think is the service you’re best known for, and you also write for some of the premier financial publications around the world.
[00:01:05] So, Michelle, welcome. And can you tell us a little bit more about who you are?
[00:01:11] Michelle Leder: Sure. Thanks for having me on, Nick. I appreciate it. I am, I guess, fundamentally a, a financial journalist. + . You know, I run, uh, I, when I wrote the book Financial Fine Print, which is going to celebrate its 20th anniversary next year, I can’t believe I’m that old. It will, you know, basically, when I wrote the book, it was looking at the
[00:01:34] disclosures that were in footnotes, and of course, it came out of the Enron, WorldCom situation where a lot of the information about just how bad these companies were, were buried in the footnotes. As opposed to, you know, there was one thing that the company was doing to kind of present itself one way,
[00:01:52] Michelle Leder: and then behind the curtain, if you will, to use a Wizard of Oz reference, there was all this stuff going on in the background that was really, you know, disclosed, but maybe disclosed in a very confusing and not readily accessible way. And from there, I started the site Footnoted. And Footnoted, you know, originally started as a way to promote the book and kind of morphed into a website that looks at the things that companies bury in their routine, SEC filings.
[00:02:20] And then, from 2008 to 2018, I was running a professional service, a, a subscription-based service that was focused on these disclosures, actionable disclosures in SEC filings. And now I’ve recently come back after a, a hiatus, and I am focused on what I’d like to call the Friday night dump. I’ve been using that term for quite a while, and I gotta tell you my, my 12-year-old son gets much delight out of the term Friday night dump. Because he’s right at that age where poopy, potty humor really is, uh, you know, it doesn’t get much better than mom talking about potty humor.
[00:02:58] And, you know, we call it the Friday night dump because what it does is it looks at the comp, at the filings that are made after 4:00 PM on a Friday afternoon. So, markets obviously close 4:00 PM, but the SEC remains open until 5:30 PM and accepts filings. And you would be amazed to know how many filings there are made on a typical Friday.
[00:03:19] I mean, you know, I’ve looked at the numbers recently and, you know, you might see, like, 70 8Ks filled in the 10 hours between 6:00 AM and 3:59 PM. And then you’ll see, like, 180 filed in the next 90 minutes. So, imagine that, the distribution, like, 70-something filings in a 10-hour period or roughly, you know, that’s, that’s, you know, a seven per hour, and then all of a sudden you get like two per minute,
[00:03:48] once the market’s closed. So, it’s, um, you know, interesting. I mean, you know, of course, not every disclosure made late on a Friday is, like, earth-shattering, but I would say that more times than not, there’s definitely, you know, information that the company would prefer, sort of goes to sleep, you know, while people are, you know, um, focused on their weekend plans.
[00:04:09] Nick Mazing: And it, it also happens not only on Friday, I’ve had a long weekends, I’ve, you know, I’ve seen you on Twitter keeping an eye on the situation and, you know, everybody else is, you know, driving to their holiday destination, there you are keeping an eye on who is using the, uh, long holiday weekends for, for filings. So, it’s not just on, not just on Friday.
[00:04:27] Michelle Leder: Yeah. Yeah. And I gotta tell you, being out in California, it’s certainly an advantage, right? Because instead of 4:00 PM, it’s 1:00 PM my time. So, I’m not like, you know, taking my Friday night to look at these things.
[00:04:37] Nick Mazing: Yeah. So, now let’s talk about SEC filings, and specifically, let’s talk about common red flags. And I, you know, I’m going to make an unsubstantiated claim. There’s probably nobody on Planet Earth who has read more SEC filings than you have. And maybe it’s true, maybe it’s not, let’s say it’s So, I’m…
[00:04:57] Michelle Leder: Let’s say it’s true. What the heck?
[00:04:59] Nick Mazing: I am an avid reader of SEC filings myself.
[00:05:02] I always read them red-lined or black-lined to spot changes because when it comes to filings, there is nothing accidental, right? If, let’s say a certain risk factor is added or, or something like that, what it means is that people with infinitely better information than I’m ever going to have, have decided that something is material enough to be added to the filings.
[00:05:27] So, what are your top two or three red flags when it comes to filings?
[00:05:33] Michelle Leder: Yeah, I mean, I think you pick up on something important, as I like to say when I do, you know, webinars or I talk to other people, I say, “There are no accidents in SEC filings.” Now, that’s not entirely true. Sometimes there’s a typo or a missing exhibit or whatever. Of course, there’s accidents. But, you know, when a company, you know, even if they add a plural, I mean, I’ve caught things where instead of saying subpoena, all of a sudden subpoenas, you know, and that is, you know, important, right?
[00:06:02] I mean, you know, it’s instead of a singular, it’s a plural or, you know, lawsuit to lawsuits or whatever, you know, you can use this word any number of times. So, the things that I like to, you know, the, the red flags, I guess, you know, is a sudden resignation. If someone resigns, like, that day, or even better, a lot of times what you find on a Friday evening, when I’m going through the filings, is the person, he or she resigned on a Monday, and we’ve reached the four day period on the, uh, on the requirement for an SEC filing.
[00:06:34] And so, you learn about it on, you know, Friday evening that, “Oh, the CFO decided to, like, leave on Monday.” Or something like that. That’s the type of thing that I think is a, is a big red flag. And, you know, especially if they don’t give any reason or they just use the standard language, like there are no disagreements or, you know, and it could also apply to a Director too, right?
[00:06:56] Like, I mean, it could be a Director, it could be any, it doesn’t have to be the CFO, it could be another named executive. You know, someone else significant, Chief Legal Officer, what have you. What I find is that, you know, if they’re resigning, I mean, you know, think about it, you know, someone who has a Mick job, literally, like, you know, you’re working at McDonald’s or Starbucks, or whatever, you know, Panera or whatever, chances are you’re not just gonna, like, walk off the job right then and there, right?
[00:07:22] And you’re making a hell of a lot less than someone who’s running, you know, the Chief Legal Officer or the CFO of a major, you know, a publicly traded company, it doesn’t have to be major, right? But a publicly traded company, if you’re just walking off the job, there’s gotta be something there, even if you can legitimately say that there were no disagreements.
[00:07:41] I think that everyone who’s, you know, smart or reads filings carefully. I mean, I gotta tell you, after 20 years, nearly 20 years of reading filings, the number of times where I’ve seen a company disclose a disagreement is like 0.0002%. There’s never any disagreements. The auditing firm steps down,
[00:08:03] Michelle Leder: no disagreements. You know, a Director steps down, no disagreements. This, an, uh, an Executive Officer steps down, again, no disagreements. So, you know, that’s a huge red flag.
[00:08:14] Nick Mazing: To be clear, when these transitions are done, you know, I don’t wanna say the word properly, but let’s say properly, there is a pretty good notice. Let’s say the investor, they, they say that next year the CFO will, will retire, and we initiated a search or something like that. And in contrast to an 8K, which for our non-US listeners is a filing related to material events such as named Executive Officer resignations or earnings and things like that.
[00:08:45] It’s certainly, I can see why that’s a red flag. So, can you give us a few more?
[00:08:50] Michelle Leder: Yeah, I mean, I think anytime a company has to file an amended filing, right? So, those are filings that have a / and an A at the end of them. I think that’s certainly, you know, a red flag. Now, look, everyone makes mistakes. I make mistakes, you know, dozens of times, probably every day. As I like to tell my son, some of them are big mistakes, and some of them are like, “Oh, I forgot to, you know, put the cheese stick in his lunch.” Sort of thing.
[00:09:14] But everyone makes mistakes, right? And so, we get that. But, you know, when you are a company and like, you know, you’re filing a 10K, and you have to file an amended 10K to not just correct a typo or a missing exhibit or something, but, like, to correct accounting information or, you know, revenue recognition or something like that.
[00:09:34] Michelle Leder: That’s a huge red flag. So, that’s something else that I look for. If you have to do that repeatedly. Like, I was looking at a, uh, crypto company, and I know I’m not supposed to name names here, so I will not name names. But a company in the crypto space recently had to file its second amended 10K since March of this year.
[00:09:53] Now that’s, to me, a red flag. Now, of course, crypto’s already been beaten up, so maybe, you know, there’s nothing to, you know, really say more about that. But at the same token, you think like, if you can’t, you know, get it right, maybe, like, the first time, that kind of spells out, you know, bigger problems.
[00:10:10] And the other big red flag, I would say, is companies that are, you know, consistently late with their filing. So, right, there’s a very determined schedule. If you are, you know, you know, an accelerated filer or a large accelerated filer, you know, you have 40 days to get your Q in. You have 60 days to get your K in.
[00:10:26] You know, if you’re consistently late on that, or even if you’re just late once and there’s no reasonable explanation for why you’re late, like, “Oh, we just completed this big merger, and it’s hard to, you know, merge the two companies, backend systems, blah, blah, blah.” You know, that can be really, you know, a signal as well, I would say.
[00:10:47] So, those would be, I guess, my top three.
[00:10:50] Nick Mazing: Yeah. And, and let’s double-click a little bit on that. So, I fixed a very good framework. So, there is the content of the filing itself and what the real news was, or there’s something added because of, you know, let’s say, risk factors or some certain disclosure language or a change in accounting policy.
[00:11:08] But then, there is the meta-information, right? And such as, let’s say an, an earnings announcement and the requisite filings that comes in substantially later than that quarter in the prior year. And, you know, there are services who, who track these sort of delays. So, what kind of metadata around filings do you like to look at?
[00:11:32] Michelle Leder: You know, I like to look at, you know, if a company consistently, you know, files, you know, like if you were to take quarterly earnings, if they’re consistently filing at a certain time and all of a sudden they file, like, significantly later, and I’m sorry, I shouldn’t say quarterly filings, but, like, if a company like, um, if, you know, they routinely file after 4:00 PM on a Friday afternoon, and there’s a big, a very large, large company that’s very well-respected, again, not naming names,
[00:12:00] but its name starts with BH. And, um, you know, they consistently file after 4:00 PM on a Friday afternoon. So, you know, chances are there’s nothing, you know, that’s their pattern of filing. Right? And that’s okay. My former employer, Morningstar, also files consistently on a Friday afternoon. Right? But when a company all of a sudden starts filing, you know, if they file, like, all of a sudden they’re filing like a lot of 8Ks or they’re suddenly not filing any 8Ks, anything, it’s, it’s, you know, I like to think of it as like pattern recognition.
[00:12:33] Michelle Leder: It’s almost like a giant game of concentration, like, where you put all the cards out on, on, you know, and you have to turn ’em over, and you’re kind of like, “Okay, where did I see that before? Where did I see that pattern before?” And after 20 years of reading filings, you know, chances are I’ve seen that pattern before.
[00:12:49] Nick Mazing: Mm-hmm. Yeah, it’s, it’s, it’s really good news. Let me ask about one of my least favorite things, and that is SEC filings that are unsearchable images.
[00:13:00] Michelle Leder: Mm.
[00:13:00] Nick Mazing: we have seen, you know, in some cases, some companies may file, let’s say, an eight, earnings 8K, where instead of actual text, it’s just images that are either impossible or difficult to search. And, and I’ve seen this also with proxy statements more and more. It’s kind of funny, uh, in the last year, or two years, I was on a panel with a person, a proxy design advisory firm, and they, their view is, “Well, you know, your document has to look beautiful when the shareholder opens it, it has to, you know, guide ’em through your thinking and you have to have beautiful charts and things like that.”
[00:13:37] And I was, you know, at the end of the table, just called him, he had like, “No, you’re making it less searchable. Why would you make your filings less searchable?” Especially for users who use, who search across multiple companies. So, how do you feel about the images in SEC filings?
[00:13:51] Michelle Leder: Yeah, I mean, we’ve noticed that for the last couple years, and it’s certainly, you know, problematic, especially when you’re, you know, looking at text. I mean, I’m all for graphics and making something look, you know, nice, but when the text is also treated as a PDF, it makes it a little bit difficult. You know, one of the things that I spend a lot of time looking at, and maybe I shouldn’t tell you the secret, but I do, I will, it’s, uh, looking at the forward-looking statements, very few people pay attention to the forward-looking statements in earnings.
[00:14:20] But what I’ve found is that you can really, you know, again, going back to there are no accidents in SEC filings when there are words that are changed in the forward-looking statements and you can pick up on that, it’s pretty interesting quite frankly. You know, because companies will disclose, what I’ve often found is that a company might add something to their forward-looking statement.
[00:14:41] And this is the, you know, routine, seemingly routine disclosure that accompanies most earnings reports or really most filings, but in particular earnings, statements is that, you know, it will often grow into a risk factor the next quarter. So, it might start out as a little tweak in the forward-looking statement, and then it turns in full bloom into a risk factor.
[00:15:02] Michelle Leder: And so, it’s almost like an early heads up, if you will, about a potential problem. So, you know, I’ve seen that, you know, where companies will, you know, change language like that, and they’ll do it in an image which makes it really, really hard to, um, search. It’s not impossible. I know when I’ve bellied the debate about this on Twitter.
[00:15:21] People have said like, “Oh, well, if you have this program, you could do this.” And I’m just thinking like, “Okay, yeah, but, you know, in reality, most people aren’t looking at the forward-looking statements, to begin with. And so, you know, are they really gonna take this extra step?” So, you know, I would argue that anything that makes your filing harder to read, you know, is not a good thing.
[00:15:41] I mean, I’m all for making it pretty and making the graphics and everything like that, but if it makes it harder to read, that’s, that’s a real problem. You know, this reminds me of something, like, one of my favorite 10Ks that I have, it’s an annual report, I should say, not a 10K. But it was one of my prize possessions, is back when Marvel was a publicly traded company, and this is going back quite a long time ’cause I forget how long Disney’s owned them now, but it’s been a while.
[00:16:05] But they had their revenue charts and their, you know, other charts there had like, you know, Marvel characters climbing up the, you know, like the, it was just great, it was beautiful imagery. It was like, you know, the Hulk climbing the revenue chart and like, you know, the Thing doing, you know, his, you know, it was just really, really funny.
[00:16:23] But, and that was a great annual report, but it didn’t give you a lot of information.
[00:16:27] Nick Mazing: Yeah. Don’t get me started on, on truncating Y-Axis in investor presentations and things like that. Maybe we should do a special episode on, on Index that’s, that’s its own, uh, that’s its own animal. So, this transitions nicely into the final question that I had. So, you obviously being the consumer, the consumer of SEC filings, for our listeners in external reporting departments, what would you say are some of the best practices? Besides, “Do not file on Friday night.”
[00:17:02] Michelle Leder: Well, I suppose, look, if something happens, and you need to get it in, “File on a, by all means, file on a Friday night.” But I think, you know, “Give as much information as you can.” I think that a lot of companies take the approach of, “We’re gonna disclose exactly what we need to do and, you know, know more.” You know, last week, for example, when I was looking at the Friday filings, there were a lot of companies disclosing changes in their bylaws. And one very large bank, again, I’m not gonna name names, basically, summarize all the changes in their bylaws. You know, like point by point. I mean, do I know it was an exact summarization? I don’t. But, you know, they gave a pretty good summarization of what changes they had made in their bylaws. Another large company in the tech space basically said, “We made some changes to their bylaws and, you know, good luck find…” I mean, they didn’t say, you know, “Good luck finding them.” But that was basically the message, “We made some changes to our bylaws and effective blah, blah, blah date.” You know, I mean, no one’s gonna, you know, I mean, I guess someone will, if you’re really, really, you know, Board might go through the, you know, do a black line on the bylaws changes, but, you know, “Make it easy.”
[00:18:12] Like, you know, there’s no reason to hide, make it, you know, especially when you’re, when it’s publicly available information, right? Like, I can’t tell you how many times they get a, a filing that says, you know, “So-and-so Director stepped down effective, you know, July, whatever, pick a date, January 20th.” And, you know, they don’t say what the Director, you know, how, when the Director joined the Board, what committee that they, you know, were, were sitting on when they left. I mean, these are important pieces of information that will tell you, you know, if it’s the Chairman of the Audit Committee, that’s a big difference than if it’s like some back venture, right? And, like, the thing that just gets to me every time is that that information is readily available in the proxy.
[00:18:57] So, why make me, why force me and why force an investor to go back and do the work and, like, go to the proxy and say, “Oh, okay. Joe Blow was, like, you know, the Chairman of the Audit Committee, so now I really take this very seriously that he suddenly resigned.” You know, that type of thing. I think that companies that, you know, another tip would be, you know, if at all possible, and I realize, you know, not being on the reporting side, this may not always be possible, but if you’re filing your earnings, you know, try to get your Q in around the same time. I mean, I see some companies that release earnings in their Qs on the same day.
[00:19:33] And that, to me, is a huge signal that like, “Hey, we’re not hiding anything.” And then you see companies that, like, release their earnings, let’s say, you know, the first week of February for companies on a year-end. And then they, they wait until, like, you know, uh, like March, whatever to get their Q in, to get their K in.
[00:19:51] And you kind of wonder like, “Huh, why did six weeks pass between the time they released earnings and the time that they filed their K?” You know, that to me, so I think like if you can, you know, work on some of those things, I would aim for, you know, as much disclosure. Look, you have attorneys, you have, you know, corporate executives who are maybe saying, you know, kind of holding you back or whatever.
[00:20:12] I get it. But, you know, no 10K is written by one person or, you know, even an 8K probably. There’s a lot of hands in that. But I think that if you error on the side of, like, full disclosure, that always, I, I always think like, “Oh, that’s, that’s kind of nice. I appreciate that bank that summarized their, you know, bylaw changes.”
[00:20:31] That was a nice thing. So.
[00:20:33] Nick Mazing: I’m, I’m personally big on filing the queues and the 8Ks at the same time or near the same time because I think, especially with the, with the market shift in the last several months. People want to see the cash flow statement. We’re back to, we’re back to fundamentals. And if you don’t have the cash flow statement, which very few companies actually including their 8Ks, right?
[00:20:54] And then you have to wait for it and, and, and so on. And I, you know, personally, don’t like seeing, let’s say, a company release at 4:15 PM Eastern, you have the 8K and the press release, and then the call starts at 4:30. Right? That’s not enough time. And in my, one of my least favorite examples, there was an industrial company.
[00:21:12] They released the 8K, they had the call, and then I think it was the next day, or two days later, they released the 10Q, and they had sizable FCPA disclosure, and the store dropped like 5, 6, 7%. I forget what it was, but it was, it was, it was a material sort of addition in the 10Q, but it was after the call already.
[00:21:30] So, Michelle, uh, thank you very much for joining us.
[00:21:34] Michelle Leder: Thank you, Nick.
[00:21:35] Nick Mazing: Our guest today was Michelle Leder, founder of Footnoted, and then we have all of the relevant links in the show notes. My name is Nick Mazing, this is Signals by AlphaSense, and you can subscribe to us on all the major platforms. Thank you for listening.
[00:21:48] Outro: Thank you for joining us. This was another episode of Signals by AlphaSense. Keep in mind that all views presented here are the views of the guests and hosts and do not represent the views of their employers or of AlphaSense. Nothing in this podcast constitutes investing, tax, legal, or medical advice. If you enjoyed this episode, leave us a rating and review and subscribe for more.