How to Research Corporations’ “Material” Disclosures and Violations

When you are investigating a company there are two good ways to look for incidents that are out of the ordinary. Specifically, you can look for documented incidents of violations or research the company’s 8-K forms.

Violations

There are a lot of databases listing incidents of companies’ violations, but it is much easier to use the Violations Tracker by organization Good Jobs First. The Violations Tracker obtains data from the different databases and compiles it all in one place that is easy to search. The search results will also link you to the original source that will usually also have more information and often include court records.

A search for the company SAIC (results shown below) provides basic company information and an overview of its violations.

Note that Violations Tracker also recommends that you look up this particular company in the Federal Contractor Misconduct Database (FCMD) to see violations committed with contracting for the federal government. Anecdotal experience has show that there is a bit of overlap between these two databases but there will also be a lot of additional information in the Federal Contractor database.

For instance, Violations Tracker listed 18 violations for SAIC that dated back to the year 2000 the total sum of the penalties being about $46 million

A search for SAIC in FCMD listed 24 individual instances going back to the year 1995 with a total sum of the penalties being $565 million. FMCD also notes that amount of contracts awarded to the company during that time period. Federal contractors will be addressed in a separate post but it is worth noting here that individual contracts can be researched in the site USAspending.gov.

Returning to Violations Tracker, we see in our results for SAIC that individual violations are identified and you can click on them for more information.

If we click on the first record we get the page below. This individual record provides more information and a link to the source of the information (see under “Source of Data”). Also note that the database automatically archives the source webpage so that if it is ever taken down from the original website there is a link to the archived version here.

The Better Business Bureau and Ripoff Report are two other websites where you can find negative information about a company, largely reported by customers.

Material Disclosures

Material Disclosures are basically events that are out of the ordinary for a company and they must be filed in a Form 8-K. There are a wide range of things that can require an 8-k and they range from the very mundane to the very interesting, as listed on the SEC guide for the 8-k.

We will use the company SAIC again as our example.

Note that after searching for a company in the EDGAR database you can choose to type “8-k” under filing type and hit “enter” to filter results to just 8-k forms.

See these search results below and note that in the “Description” column it identifies the items included in each 8-k. This will help you find what you are looking for forms that don’t have good information.

If you are looking for something unusual, do not get distracted by Item 2.02 – “Results of Operations and Financial Condition”. If an 8-K is filed and it only contains an Item 2.02, it will usually only report business as usual.

The SEC website includes a guide (click here) that explains each kind of item included in an 8-k.

We see in the screenshot that the SEC guide mentions that an Item 1.01 means that the company entered into an agreement that was not “in the ordinary course of business.”

So we note that one of SAIC’s 8-k forms includes an Item 1.01. We see below in this specific 8-K that SAIC subsidiary Engility services LLC increased its debt to MUFG Bank LTD from $200 to $300 million.

The 8-K is a good form to research because it will record a wide variety of kinds of incidents so no matter what you are looking for, there’s a good chance you will find an 8-k on it.

Okay that’s it, good luck!

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