Financial Filings Hold Key to Investigative Pieces, Big and Small

By John Emshwiller
May 31, 2005 12:46 PM

Here are a few tips, in no particularly orderly order, which I've found useful in trying to do investigative business reporting:

1.  Take an accounting course.  "Follow the money" is tired bromide, but that doesn't make it any less true. To do it, you need to be able to read the clues and accounting is the language of finance. Trying to tackle corporate financial statements or government budgets without a working knowledge of accounting terms and concepts is a little like trying to translate Urdu using your background in English literature.  

When The Wall Street Journal hired me out of University of California, Berkeley, I knew a lot more about picket lines than cash-flow statements. At the urging of my boss, I took a UC extension night course in accounting, which the Journal was kind enough to pay for.

The course did at least three things for me. It gave me the essential rudiments for digging through corporate financial statements, which remain the best single source for learning what's going on inside a public company. Familiarity with accounting lingo also left me less susceptible to the kind of intimidation some corporate executives like to administer to a financially clueless reporter. Thirdly, learning how depreciation could be a minus on the income statement and a plus on the cash-flow statement did amazing things for my reputation at dinner parties.

2.  Regularly read SEC filings.  If your beat includes the coverage of public corporations, you should feel obligated to read, in detail, the companies' basic Securities and Exchange Commission submissions: each quarterly earnings report, known as Form 10Q; the proxy statement for the annual meeting; announcements of material events on Form 8K and, perhaps most important, the annual report, aka Form 10K.

If you are assigned too many public companies to thoroughly read everything from everybody, choose your most important companies and give them the full treatment.  For the others, at least try to skim through their filings. Since Congress went to all the trouble in the 1930s of creating the SEC and requiring these corporate disclosures, it seems like somebody should give them an occasional good read.

The Edgar database at the SEC's Web site gives any individual free access to the filings of thousands of public companies. For-fee services, such as 10KWizard.com, offer the very valuable added function of being able to do keyword searches of the entire Edgar database. It's sometimes amazing what kind of leads typing someone's name, address or phone number into an Edgar search engine can generate.

3.  Sometimes, think small.  Don't believe that investigative journalism, business or other, is confined to multi-storied, multi-month projects that come packaged with a "Please Consider This for a Pulitzer!" message written in not-so-invisible ink just below the bylines. Certainly, such mega-projects can be incredibly valuable to the public and satisfying to the reporter.

But investigative reporting can also appear in one small story based on one small fact that somebody in power wants to keep in the shadows. 

The biggest business story that I've ever worked on, the Enron scandal, began for me in August 2001 when I tripped across a factoid.  While preparing for an interview with Jeff Skilling, who had suddenly quit as the company's president, I called up Enron's most recent SEC filing.  Fairly deep into the document were references to private partnerships, partly owned and run by an unnamed Enron executive, who turned out to be Chief Financial Officer Andy Fastow. Although the so-called "LJM partnerships" had done hundreds of millions of dollars of deals with Enron, the company's explanation of those deals was financial gobbledygook ? a conclusion that my rudimentary accounting education didn't hurt in reaching. The very obtuseness of the company's explanations suggested that somebody might be trying to hide something.

Early on, my Journal colleagues and I had no idea of the full import of the LJM partnerships. But they seemed suspect enough to be worth a mention in a story. That story caught the eye of someone who provided vital guidance into the financial and accounting labyrinth at Enron. The LJM partnerships, and all their tendrils, blossomed into a huge investigation for the Journal and, later, for many other news organizations and the U.S. government. But, in some ways, it began with one small item buried in one SEC filing.

 4.  Love computers, try to master online databases and search techniques, but don't give away your walking shoes.  The drive for greater productivity being felt in many newsrooms is pushing reporters to rely more on the telephone and the Internet for digging up information. But often, there is no substitute for going to places where you might not be welcome. Sometimes, confronting a person will get you an interview you never would have gotten by phone. Even if the person won't talk, a visit can produce valuable color or leads.

I once visited an office that I suspected housed some stock swindlers. As I expected, I didn't get past the receptionist, who wouldn't give me any information about who was using the office. But as I was sitting in the waiting area, waiting to be told nobody would see me, I had time to read the mailing labels on the magazines that had been thoughtfully left for visitors to peruse. One label showed that one of the suspected conmen at least got his Esquire at the office. That discovery, alone, made the trip worthwhile. There were also a couple of interesting articles in the magazine.

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Copyright © 2008 Donald W. Reynolds National Center for Business Journalism