Methodology

Red Flags Detection

Automated monitoring of SEC filings for disclosure events that historically correlate with material stock underperformance. Red flags are extracted from 8-K, 10-K, 10-Q, and NT filings using pattern matching and NLP.

Validation Status

Red-flag detection claims are tied to the committed SEC corpus and the late-filing backtest in the claims registry, including the revised evidence when observed returns differ from older launch copy.

Backed claim

6 count

README red-flag categories are backed by deterministic rules in src/services/filing-red-flags/rules/{going-concern,liquidity,auditor,legal,executive-transitions,accounting}.ts and the real SEC corpus conformance test at tests/conformance/filing-red-flags/real-sec-corpus-f1.conformance.test.ts, which validates category coverage over 40 committed 10-K/10-Q SEC excerpts labeled in tests/fixtures/sec/real-red-flag-corpus/manifest.json. Supporting coverage includes tests/conformance/filing-red-flags/rules.conformance.test.ts, tests/conformance/filing-red-flags/litigation-differential.conformance.test.ts, tests/unit/services/filing-red-flags/text-extractor-detector.golden.test.ts, tests/adversarial/filing-red-flags/parser-adversarial.test.ts, and e2e/authenticated/filing-red-flag-surfacing.spec.ts. Evidence is limited to deterministic rule coverage over the curated corpus and related harnesses.

Evidence provenance

filing-red-flag-10kq-categories-6

Test evidence: tests/conformance/filing-red-flags/real-sec-corpus-f1.conformance.test.ts

Real-data backtest

-1.62 percent

Real Form 4 + split-adjusted daily_returns backtest (corrected bd-rbkns methodology, >=18c7ed4ba: coverage-gap and delisting skips counted, tolerance-only confirmation) still refutes the legacy README magnitude: observed -1.62% 90-day market-adjusted return for late filings over 2021-07-25..2026-07-25, 95% CI [-1.96%, -1.28%], n=69,846 late filings among 1,319,618 priced Form 4 events (the 2026-10-03 run measured -1.74%, CI [-2.08%, -1.39%], over 61,168 late filings; the 2026-11-02 value lies inside that interval). The 2026-11-02 run read a local mirror of production insider_signals (form 4) and daily_returns whose row counts matched production. Its inputs grew more than the one-month window shift explains: the old window now holds 1,369,010 Form 4 events against 1,199,505 on 10-03, because historical rows were added since. Delisting skips rose from 1,727 to 7,610 and no-price skips from 37,230 to 51,472; both stay in the denominator accounting, and the cause of the delisting rise was not decomposed. The e-process value is pinned at its exp(700) numerical ceiling, so it no longer moves with n. The small negative effect itself is very strongly supported (classical clustered p effectively zero at the persisted precision; the classical artifact's result.evalue field is the capped kappa=1/2 p-to-e calibrator of that test). The evalue block here tracks the parallel Grunwald-Vovk betting e-process from late-filing-evalue-latest.json, which tests the winsorized conditional-mean null in filing-date order (presentation adjudication: bd-l6i53). The claimed -8.2% magnitude remains refuted under all of these.

Evidence provenance

late-filing-underperformance-8.2

Computed 2026-11-02; evidence tests/scripts/late-filing-underperformance.test.ts; docs/claims/late-filing-latest.json

Source: docs/claims.json, generated 2026-09-07.

Detection Categories

Each red flag category is assigned a severity level and contributes to the attention queue scoring. Critical flags trigger immediate alerts for subscribers.

Going Concern

Severity: Critical
Description: Auditor expresses substantial doubt about the company's ability to continue as a going concern
Source: 10-K, 10-Q auditor opinion

Material Weakness

Severity: High
Description: Deficiency in internal controls over financial reporting that could result in material misstatement
Source: 10-K Item 9A, 10-Q Item 4

Auditor Change

Severity: Medium
Description: Change of independent auditor, especially mid-cycle or with disagreements disclosed
Source: 8-K Item 4.01

Restatement

Severity: High
Description: Restatement of, or non-reliance on, previously issued financial statements due to error or irregularity
Source: 8-K Item 4.02, 10-K/10-Q accounting disclosures

Late Filing

Severity: Medium
Description: Insider transaction reports (Forms 4 and 5) filed after the SEC deadline; chronic lateness precedes weaker governance
Source: Form 4 / Form 5 filing dates vs. deadline

CFO/CEO Departure

Severity: Medium
Description: Departure of a key executive, especially if unexpected or during a sensitive period
Source: 8-K Item 5.02, 10-K/10-Q subsequent events

Delisting Notice

Severity: Critical
Description: Notice from an exchange regarding non-compliance with listing standards
Source: 8-K Item 3.01

SEC Enforcement

Severity: High
Description: SEC investigation, Wells notice, or enforcement action disclosed (persisted under the lawsuit flag type)
Source: 10-K/10-Q Risk Factors and Legal Proceedings, 8-K Item 8.01

CategorySeverityDescriptionSource

Going ConcernCriticalAuditor expresses substantial doubt about the company's ability to continue as a going concern10-K, 10-Q auditor opinion

Material WeaknessHighDeficiency in internal controls over financial reporting that could result in material misstatement10-K Item 9A, 10-Q Item 4

Auditor ChangeMediumChange of independent auditor, especially mid-cycle or with disagreements disclosed8-K Item 4.01

RestatementHighRestatement of, or non-reliance on, previously issued financial statements due to error or irregularity8-K Item 4.02, 10-K/10-Q accounting disclosures

Late FilingMediumInsider transaction reports (Forms 4 and 5) filed after the SEC deadline; chronic lateness precedes weaker governanceForm 4 / Form 5 filing dates vs. deadline

CFO/CEO DepartureMediumDeparture of a key executive, especially if unexpected or during a sensitive period8-K Item 5.02, 10-K/10-Q subsequent events

Delisting NoticeCriticalNotice from an exchange regarding non-compliance with listing standards8-K Item 3.01

SEC EnforcementHighSEC investigation, Wells notice, or enforcement action disclosed (persisted under the lawsuit flag type)10-K/10-Q Risk Factors and Legal Proceedings, 8-K Item 8.01

Scoring Integration

Red flags contribute to the attention queue score with a base weight of 0.12. The contribution scales with severity:

critical_multiplier = 1.0
high_multiplier = 0.7
medium_multiplier = 0.4

red_flag_score = max(severity_multiplier for active flags)
attention_contribution = 0.12 * red_flag_score

Only the highest-severity active flag is counted to avoid double penalizing companies with multiple related disclosures (e.g., going concern typically accompanies material weakness).

Data Sources

SEC EDGAR: Real-time RSS feed for 8-K, 10-K, 10-Q, NT filings
Refresh cadence: Every 15 minutes during market hours
Historical lookback: 24 months for scoring purposes
Pattern matching: Rule-based extraction with NLP fallback

Limitations

US-listed equities only; foreign private issuers may have different disclosure forms
Pattern matching may miss novel disclosure language or non-standard formatting
Some flags (e.g., SEC investigation) may be disclosed late or not at all
Historical correlation does not guarantee future predictive power

Citations & Research Basis

SEC EDGAR company filing feeds are the source of 8-K, 10-K, 10-Q, and NT filing disclosures.
Internal conformance tests over a real SEC corpus validate category coverage before these flags appear in launch surfaces.
Late-filing impact estimates are treated as empirical backtest results, not static marketing copy.

See also: Attention Queue | Insider Signals