Investigating Public and Private CompaniesJune 30, 2021
When it comes to business journalism, there is no substitute for digging into the source financial documents. The Securities and Exchange Commission’s Edgar website contains a trove of corporate information, ranging from employment contracts for top executives to details about lawsuits to pending government investigations. Investigative journalists tend to analyze these documents for trends over long time periods to see evolution of business strategies, for example. The Reynolds National Center for Business Journalism website has a number of tutorials on how to navigate corporate documents, including:
— The 8-K or “current reports” which contain breaking news on market-moving events. See this tutorial. Pro Tip: Press releases may offer a narrow or distorted view of an issue that’s more fully explained in a quarterly or annual filing.
— The 10-Q or quarterly filing which contains financial statements, details on lawsuits, investigations and emerging risks. See this tutorial. Pro Tip: See how “risk factors” have changed over time by comparing the current report to the prior quarter or previous years.
— The 10-K or annual report which contains audited financial statements, employment contacts and details about properties. See this tutorial. Pro tip: The good stuff is buried in the footnotes. Read the financial statement footnotes and compare the notes to previous years.
— The S-1 and related filings that spell out a company’s initial stock offering and provide a public glimpse of their finances. See this tutorial. Pro tip: See the distribution of shares to corporate insiders and determine who will control the company after the stock offering.
— The proxy statement, or Def-14, which contains details on executive pay, biographies of directors and officers and special executive perks. See this tutorial. Pro tip: Look for housing allowances, security expenses and gym memberships in the footnotes for the CEO’s executive pay package.
There are approximately 3,600 companies listed on U.S. Stock exchanges, but some eight million firms are privately held. Small and privately-held firms employ more than half of the workforce and account for more than half of the country’s economic output. Learning about the ownership and operations of private companies is difficult and time-consuming, but some basic details can be discerned.
I recommend a “staircase” approach, where you start with the business charter and property tax records. What is the address for the person who incorporated the company? Look it up with the Secretary of State’s office, which usually has a corporate records division. Does this name match the person named on the property tax records? Find the property owners through a county assessor’s office. Then check the tax records, which sometimes can be in a separate tax collector’s office. See if the names match for the people who incorporated the company and the people who paid the taxes. If not, find out why.
Next, determine where this business intersects with the government and find the relevant records. Restaurants are inspected by the health department. Get those records. Banks are inspected by the state banking commission. Find those records. Most states have occupational licensing boards and commission to allow hairdressers, real estate agents and doctors to operate legally. Find those records, piece together the names, run them through legal databases and figure out the network surrounding a business. Here is a useful portal to public records websites.
The U.S. Occupational Safety and Health Administration, or OSHA, keeps detailed records about inspections, workplace accidents, injuries, deaths and similar incidents. You can search by company name, state, city or zip code. The National Labor Relations Board investigates employment disputes. Cases can be reviewed by company name, region and other details. These cases contain significant details about a company’s operations.
Some startup private companies sell securities to outside “accredited” investors (banks, insurance companies or sophisticated investors) through venture capital, private placements and similar arrangements. In many cases, you can learn some basic details about the amount invested and names and addresses of the company’s senior management. You can find these Form D filings on the SEC’s Edgar website or on FormDs.com, which breaks down the filings by major city.
Brokers and Money Managers
You can learn whether registered stockbrokers and money managers have been arrested or fined for misusing investors’ money by checking the BrokerCheck database. BrokerCheck, maintained by an industry regulator, the Financial Industry Regulatory Authority or FINRA, holds records on more than 630,000 current and former professionals and some 4,700 firms. The broker records show employment history and can provide clues about whether someone was forced out of a company. They provide details on investor complaints and, in some cases, details from arbitration proceedings.
In addition, FINRA and the SEC publish lists of brokers and investment managers who were penalized for wrongdoing. The FINRA monthly lists are here and the SEC’s administrative proceedings are here. Learn more about researching stock brokers by looking at this detailed tutorial here.
To investigate investment companies, look at state pension meeting documents, which can unlock details of these secretive companies such as investment information, company demographics, hirings and firings. States with the larger pension plans tend to release more information.
Open Records Requests and FOIA
The federal Freedom of Information Act or FOIA, created in 1966, is an indispensable tool for any reporter to learn how the government operates and its interactions with businesses. FOIA requests can provide invaluable insight about communications between government officials and corporate executives, or politicians acting on their behalf. The Reporters Committee for Freedom of the Press describes the latest developments involving state and federal open records laws. The Reporters Committee created the iFOIA tool to help journalists file more effective open records requests. Not all state laws are equal and the National Freedom of Information Coalition has a good guide on how to navigate specific laws by state.
Here’s my best tip for a successful open records request: do your basic shoe-leather reporting. Try to see who else has covered a similar issue. Work to narrow and focus your request. Spend a little time browsing the FOIA website of the agency in question to see what has been released. And then pick up the telephone to speak to the FOIA officer about what you are seeking — or better yet, visit in person. This outreach and research can save days and weeks of waiting and will minimize frustration.
Reach Out To Targets
Veteran Wall Street Journal reporter John Emshwiller, who helped unravel the Enron Corp. fraud, offers some important advice about investigative stories. “Reality rarely comes in just black and white,” Emshwiller wrote. “A reporter should always seek out information that could challenge or modify the story’s basic theme. If the basic premise of a story is solid and has sufficient evidence to back it up, adding a certain amount of nuance and complexity often enhances its credibility – and potential impact.” It is a best practice in news gather to reach out to the target of your story with enough time for them to respond in detail. If they blow you off, then send detailed, written questions covering “anything critical that’s going to be included in the story about that person or entity,” he writes. Bottom line: test your premises early and often.