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Investigative reporting: Local stories and angles

May 1, 2012

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Localizing an investigative business story – assuming it isn’t a piece that starts and ends in your backyard – often involves picking some broader national or even international subject and then finding a hook close to home.

Given that companies are involved in practically every aspect of life, there is a wide field to choose from.  And there’s no single database or set of databases to point you to.  But perhaps a couple of examples might help.

A big, ongoing national story is the activities in the U.S. of agents representing foreign countries.  Being based in Los Angeles, I got interested some years ago in how many agents representing the Chinese government were in Southern California and, more importantly, what were they doing.   I managed to cage a list from a source in the U.S. labor movement who had a particular interest in Chinese affairs.  However, there are websites that registered foreign agents by country, such as the Foreign Agents Registration Unit.

With my list of names, addresses and phone numbers, I got in my car and drove to each of a half dozen addresses. The first five were dry holes, either the firm had moved or inquiries about the agent were met by shrugs.

The last stop turned out to be a nightclub that hadn’t yet opened for the evening.  I called the number I had for the place and asked for the Chinese agent by name.  “Oh, he’s up at the ammunition factory,” I was told.

As it turned out this Chinese agent, who ran the nightclub, had just opened an ammunition factory,  which just happened to start-up around the time that President Clinton banned the importation of Chinese rifles and ammunition.  As an added point of interest, he’d opened it in one of the more corrupt little towns in Southern California.

The eventual story about the ammunition factory drew a good deal of attention and caused the foreign agent-cum-nightclub owner, cum-cartridge-maker to take an extended trip back to China.

On another front, in recent years there has been a surge of hundreds of small new companies coming to the public stock markets with purported headquarters in the former Soviet Union and China.  Many of these companies are mere corporate “shells” with essentially no assets or employees and only the vaguest of business plans.  They are vehicles that can be used for illegal stock manipulations and a number have been.

Let’s say you want to see if any of these shells have landed in your community. You could start by going the Securities & Exchange Commission’s free EDGAR database, which contains the filings of thousands of public companies.   What you’d be looking for is a filing called an S-1, which is filed by a new – and often tiny – company seeking clearance to sell its stock from the U.S. Securities and Exchange Commission (SEC).

Mary Shapiro SEC
Mary Shapiro, SEC chairman, at the SABEW 2011 spring convention on April 8, 2011.

A useful landing page within the SEC’s main site is the full-text search,  which allows you to do keyword searches of all filings going back four years.  You can then click on “advanced search,” which allows you to customize your keyword search by, among other things, the type of filing, such as an S-1.  Then type in keywords, such as “Ukraine” or “Kiev” or “Russia” and start pulling down filings on companies with appear to be shells.

Once you have that list, look for commonalities among the companies, such as using the same law firm or accounting firm.   If such a law or accounting firm comes up, you can then put the name of the firm back in the keyword search engine to see what other little companies come up using that same firm.  Shady stock promoters often use the same law or accounting firm for dozens of shell companies.

Once you get a list, see if any of those companies are local to you.  You should also run each of the company’s names through the EDGAR database, since many of these shells change their name.

A story The Wall Street Journal did a couple of years ago on this subject came up with a dozen shells out of the Ukraine and Russia that all used the same small U.S. law firm.  One started out as a would-be string of Ukrainian massage parlors and ended up as a U.S. gold-mining company whose stock soared—at least for a time.


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