As we reported last October, the Financial Services Authority in the UK is challenging the payment for corporate access with client commissions.  The FSA’s scrutiny goes beyond corporate access, however, and is raising questions about how well asset managers are managing their use of client commissions generally.  The implications could be more far reaching than corporate access.

FSA Review

Between June 2011 and February 2012, the FSA conducted reviews of asset management firms, assessing how well they were managing conflicts of interest. The FSA said the review was prompted by evidence that “some firms no longer saw conflicts of interest as a key source of potential detriment to their customers and had relaxed controls that we had considered to be well-established market norms.”  The review resulted in letters sent to senior management at asset managers, and a published summary of findings.

The wording of the summary was harsh:

• “many firms had failed to establish an adequate framework for identifying and managing conflicts of interests;”
• “most of the firms visited could not demonstrate that customers avoid inappropriate costs;”
• “in most cases senior management failed to show us they understood and communicated [a] sense of duty to customers or even that they had reviewed or updated their arrangements for conflicts management since 2007.”

The FSA threatened enforcement actions in some cases, and stated it would conduct a second round of reviews.  It also required the CEO’s of the UK’s 195 largest asset managers to attest that they are managing conflicts of interest consistent with FSA guidelines.

Inadequate Commission Management

The FSA has a narrower definition of research than the US Securities and Exchange Commission.  In order to be classified as research payable with client commissions, research must contain “original thought, in the critical and careful consideration and assessment of new and existing facts, and does not merely repeat or repackage what has been presented before.”  Market data, corporate access and access to IPO’s have challenges meeting the FSA’s criteria for commissionable research.

The FSA’s challenge to corporate access was made in the broader context of lax controls on how asset managers spend client commissions:

We found that few governing bodies [of asset managers] regularly reviewed whether the products and services purchased using client commissions were eligible to be paid for with customers’ funds. In particular, various firms were using commissions to pay for market data services and were unable to demonstrate how these met all of our evidential standards for research services. Firms were also unable to demonstrate how brokers arranging for access to company management or providing preferential access to IPOs, constituted research or execution services.

Corporate access is an issue for the FSA, but it is a symptom of a larger problem: most of the asset managers it reviewed were not prudently managing their clients’ monies.  The FSA set a high standard for managing client commissions by comparing the commission management process to the asset manager’s internal procurement policies for its own monies.  “Only a few firms we visited exercised the same standards of control over [commission] payments that they exercised over payments made from the firms’ own resources.”

It noted with approval two commission management practices: 1) carefully considering which services represent valuable inputs to the investment process and challenging brokers about paying for other services not considered valuable; and 2) setting a maximum spend on research services and once these limits are reached switching commission rates for the brokers concerned to execution-only rates for the remainder of the commission period.  The majority of firms the FSA reviewed, however, “could not demonstrate that customers avoid inappropriate costs.”

Fallout for Corporate Access

Market participants have been sorting out which forms of corporate access potentially meet the FSA guidelines for research.  Investment banks have been trotting out lawyers to try to calm nervous asset managers.  Corporate access is viewed as a spectrum.  Conferences and road trips where asset managers visit corporate facilities are generally viewed as meeting the FSA’s tests for research, given significant involvement from sell-side analysts.  At the other end of the spectrum is vanilla ‘diary management’, which is viewed as not meeting the FSA guidelines.

Media attention on corporate access is leading some to question whether corporate access makes sense at all.  The Financial Times seems to have latched onto asset management conflicts as a signature topic, similar to the Wall Street Journal embracing insider trading investigations in the U.S.

The FT dug up an investor relations consultant who quoted ‘typical’ figures of $20,000 an hour for access to a chief executive and $15,000 for a chief financial officer.  Sounds high to us.  We understand the norm in the U.S. to be $10,000 for a CEO, $7,500 for a CFO and $5,000 for others.  However, for hard-to-get CEO’s or non-US CEO’s, charges can be higher.   Long/short hedge funds have to pay a premium because corporate executives don’t like interacting with short sellers.

In the media spotlight, some in the investor relations community expressed shock and outrage that investment banks were being paid for corporate access.  The FT quoted one IR professional apparently innocent to the practice:  “One gets annoyed and suspicious when you find out that your resource is effectively being used as a currency by sales teams.” The IR trade association in the UK has called for greater transparency about corporate access payments, and  more clarity in the broker’s role in setting up access.

It is unclear whether asset managers will pay fewer commissions for corporate access in the wake of the FSA’s challenge.  The latest survey from Thomson Reuters Extel indicates that UK asset managers spend about 30%  of commissions on corporate access.  Almost certainly, corporate access spending will be shifted to other services.  It will be difficult to determine, even for the FSA, whether the diverted commissions will pay for new services or for pre-existing services marked up to compensate for ‘free’ corporate access.

The Bigger Risk

Which leads back to the topic of commission transparency.  Does the FSA want to go down this rabbit hole again?  In 2005, the Financial Services Authority (FSA) developed a regime requiring greater commission disclosure of execution and research payments, which went into effect the following year.  In early 2008, the FSA commissioned a study of the effectiveness of its commission disclosure guidelines, and though the response was mixed at best, it decided to declare victory and move on.

The trade group for the UK asset management industry, the Investment Management Association, appears willing to throw corporate access under the bus, questioning why fund managers are paying “rents” to third parties for corporate access in the first place.

The IMA is quick to say, however, that paying with clients’ money should not be “stigmatised per se.”  The IMA is apparently setting up an independent panel to review the topic of commission transparency, and plans to invite neutral parties such as Oxera, the consulting firm which helped to  prepare the FSA’s report on commission disclosure in 2008.  Reportedly, one concern for the IMA would be a scenario of rising research commission payments triggered by a market resurgence.  Given the media attention, it is hard to explain how the cost of a research service doubled just because commission volumes doubled.

Earlier this month, the FT ran a breathless article that UK asset managers are “offloading £1bn of costs a year by bundling them up in opaque client commissions.”  Actually £1 billion sounds low.  Global equity commissions are north of $20 billion, and EMEA accounts for almost 40% of those commissions.

The source for the FT’s estimates is SCM Private, a small asset manager which has positioned itself as being transparent on client commissions.  SCM supplied the FT with detail on which asset managers seemed to be paying the highest commission rates for research and was quoted by the FT claiming that “Fund managers are having their own costs subsidised to the tune of millions of pounds.”

The FT article also quoted the chair of the European Commission’s financial services users group stating that research costs should “come out of the fund manager’s pocket”, not that of clients.

Conclusion

The scrutiny of corporate access seems to be snowballing into something bigger: should research be paid for by client commissions at all?  The Financial Times is bird dogging the issue and the IMA seems sufficiently concerned to set up panels.

Missing from the fray is any interest on the part of the UK pension schemes, endowments and the other asset owners.  This was the Achilles heel for the FSA’s commission disclosure regime.  The FSA created disclosure but the pension funds didn’t pay any attention to it.  Ultimately, the asset managers interests are aligned with the investment banks on the topic of commission payments for research.  They both want the system to continue.  If corporate access needs to be sacrificed at the altar, so be it.   We are skeptical the issue will go much further.  Pardon us for being skeptical, but we’ve seen this movie before.

New York, NY – A few weeks ago, Japanese investment bank, Nomura cut a large number of staff in the firm’s London equity research operation.  Management cited overcapacity and a continued period of falling commissions to be the primary reason for the staff reductions.

Recent Equity Research Cuts

Headhunters, who refused to be named, said that nearly 20 members of the bank’s London-based equity research division were eliminated.  Some of the senior departures included Graeme Pearson, head of Nomura’s equity research department and Rufus Grantham, the deputy head of research for the bank’s EMEA unit.  Most of the cuts came in the utilities, retail, healthcare and pharmaceutical sectors.

These recent cuts in its equity research department follow a company decision in December 2012 when Nomura announced that it would create a global markets unit combining its fixed income and equities research groups.  This new unit is now led by Steve Ashley, head of global markets, and Naoki Matsuba, the co-head of global markets.

The reductions in Nomura’s equity research team follow departures in the bank’s sales team.  In February, Nomura’s head of equity sales for Europe, the Middle East and Africa, Mark Rutherford, left after the head of cash sales for the region, Jonathan Bowen, resigned.

Rationale for these Reductions

The recent cutbacks in Nomura’s equity research department are a result, some say, of concerns that there are too many brokers providing research and trading services in the European equities market.  This development, following a sustained period of low commissions in the European equities market, has made it extremely difficult to economically justify providing “waterfront research coverage”.

This could explain why Nomura has said that it is focusing its resources on the sectors it is most highly regarded in, including financial services, natural resources, and industrial companies.  Nomura is also expected to invest in cross-asset and quantitative research.

Prior New Hires at Nomura

Despite these staff reductions, Nomura is also selectively hiring people – particularly to bolster its US equity research distribution capabilities.  In early March Nomura announced that it had hired Scott Litner, Jason Meyer, and Richard Oates to increase the bank’s US equity research distribution capabilities to clients across the Americas, Europe, the Middle East and Africa.

Mr. Litner joined Nomura as head of New York equity research sales, covering clients in New York and Denver.  Jason Meyer joined Nomura to lead the firm’s Midwest US equity research sales effort based in Chicago.  Mr. Oates joined Nomura as a US equity research sales representative, based in London.

Nomura’s equity research department in the Americas currently has over 200 stocks under coverage, spanning sectors such as: financial services, technology, media and telecoms, consumer, industrials and basic materials.

Integrity’s Take on These Developments

The staff reductions in Nomura’s equity research department are not surprising for a number of reasons.  First, the weak equity commission environment, and the large number of sell-side players in the space have made the equity research business a painful game of musical chairs.  Unfortunately, the rewards for remaining in the game have declined the longer you stay in the game.

In addition, Nomura has a history of jumping into and out of the investment banking and equity research business in the past ten to fifteen years, revealing a lack of understanding or commitment to the business.  While we thought the acquisition of talent from Lehman Brothers a few years ago would change this pattern, it is unclear whether senior management at Nomura has “bought into” the business model.

Certainly it is clear that Nomura does not believe it should play in the “waterfront coverage” business.  However, it is interesting that Nomura decided to expand its research distribution capabilities in the US.  Perhaps this is a clue that the firm really is committed to building up specific research and banking franchises that it can succeed in on a global basis.  We will have to wait and see.

Goldman Sachs received $32.5 million for its remaining stake in Epocrates Inc, after the healthcare technology company was acquired by athenahealth Inc., according to a securities filing on Friday.  Epocrates was Goldman’s last remaining investment related to its Hudson Street initiative to distribute independent research providers.

The sale represented a small loss for Goldman.  The bank cashed in 2.8 million shares for $11.75 apiece, according to terms of athenahealth’s buyout. Goldman had also sold $4 million worth of stock when Epocrates went public in January 2011, bringing its total stock sales to $36.5 million.  Goldman had originally acquired 3 million shares in Epocrates for $40 million in 2007.

Epocrates sells popular mobile applications for doctors and has one of the largest opted-in panels of physicians and other healthcare practitioners in the U.S.    In 2007, the panel size numbered about 145,000 physicians  available for custom surveys on specific questions (it has since grown to over a million).

As we noted at the time, Goldman was developing its own expert network subsidiary which it called Vantage Marketplace LLC.  Epocrates’ panel of doctors was a way to add the healthcare sector to Goldman’s new expert network.  Goldman shut down its expert network subsequent to its investment in Epocrates.

The main reason for the investment in Epocrates, however, was to promote independent research.  When Hudson Street was first formed in 2007, regulators were pushing aggressively for unbundling commissions to provide more transparency on what was paid for research.  We speculated at the time that Hudson Street was Goldman’s hedge against worsening economics for its proprietary research: “One of the major reasons for the formation of Hudson Street Services is the growing proliferation of Commission Sharing Agreements, Client Commission Arrangements, and the move to unbundling research from execution services.  In this environment, Goldman has decided that it makes considerable sense in trying to increase its share of trading volume AND increase its share of clients’ research commissions by offering both its proprietary research and unique third party research products and tools.”

However, Hudson Street never lived up to the lofty expectations Goldman had for it.  Partly that was because Goldman’s institutional sales force was more motivated to sell its proprietary research than independent research.  Partly it was because the regulators did not push unbundling as hard as it first appeared.

Maybe Goldman was just too early.  If commissions resume their downward slide, perhaps distributing independent research will become a more attractive alternative to losing money on proprietary research.

New York, NY – Last week, two units of Steve Cohen’s SAC Capital hedge fund, agreed to settle civil insider trading charges with the SEC for a record $615.7 mln.  The two units that reached settlements with the government include CR Intrinsic and Sigma Capital.

CR Intrinsic Settles with SEC

In one of the cases concluded last week, the SEC announced that hedge fund advisory firm, CR Intrinsic Investors, agreed to pay $601.8 mln to settle charges that it participated in an insider-trading scheme involving a clinical trial for an Alzheimer’s drug being jointly developed by two pharmaceutical companies, Elan Corp. and Wyeth, now a division of Pfizer.

The settlement filed with the U.S. District Court for the Southern District of New York is the largest ever in an insider-trading case, requiring CR Intrinsic to pay $275 mln as disgorgement, $275 mlln as a penalty, and $51.8 mln as prejudgment interest.

The SEC settlement with CR Intrinsic does not resolve the charges against Mathew Martoma, whose case continues in litigation. The court previously entered a consent judgment against Sidney Gilman requiring him to pay disgorgement and prejudgment interest, while permanently enjoining him from further violations of the anti-fraud provisions of the federal securities laws.

Sigma Capital Also Settles

The second case, involving New York-based hedge fund advisory firm Sigma Capital Management, agreed to pay nearly $13.9 mln to settle charges that the firm engaged in insider trading based on nonpublic information obtained through one of its analysts about the quarterly earnings of Dell and Nvidia Corporation.

“These settlements call for the imposition of historic penalties,” said George S. Canellos, the Securities and Exchange Commission’s acting enforcement director.  Sigma Capital agreed to pay disgorgement of $6.425 mln plus prejudgment interest of $1.094 mln and a penalty of $6.425 mln.

The SEC’s case against Sigma Capital was based on its ongoing investigation into expert networks and the trading activities of hedge funds.  It began last year with charges against Jon Horvath, a former analyst at Sigma Capital who admitted liability in a separate settlement this month.

Next Steps

The settlements still need to be approved by Judge Victor Marrero of the Federal District Court in Manhattan, the presiding judge in the case.  As is typically the case in these type of settlements, SAC neither admitted nor denied wrongdoing.

The two settlements against Sigma and CR Intrinsic do not prevent the filing of additional civil or criminal charges against any person, including Steve Cohen, who was not named as a defendant in either of the civil actions settled last week.  Mr. Cohen has not been charged with any wrongdoing and has told his clients that he believes he has behaved properly.

“These settlements are a substantial step toward resolving all outstanding regulatory matters and allow the firm to move forward,” said a spokesman for SAC.

Importance of these Settlements

While the sheer size of these settlements – particularly the $601.8 mln fine against CR Intrinsic is noteworthy – we think these cases are important for another reason altogether.

Typically, insider trading cases are prosecuted against individuals like Jon Horvath or Mathew Martoma, and not the firms that employ them.  However, the two settlements against Sigma Capital and CR Intrinsic are IN ADDITION TO the cases brought against the individuals who committed the insider trading.  In other words, the SEC is trying to make sure that hedge funds cannot benefit from the illegal activities of their employees and get away with it.

“The historic monetary sanctions against CR Intrinsic and its affiliates are sharp warning that the SEC will hold hedge-fund advisory firms and their funds accountable when employees break the law to benefit the firm,” George S. Canellos, acting director of the SEC’s Division of Enforcement, said in a statement.

This means that the government may start bringing more regular civil cases against the fund managers who employ analysts or portfolio managers who engage in insider trading if it can be shown that the fund and its investors also benefited from the insider trading activity.  This raises the consequences of insider trading for a fund manager as they will also face a financial penalty if their people engage in this type of illicit activity.

MSCI released a terse press release yesterday announcing it will be selling CFRA, a leading forensic research provider, to an undisclosed ‘private investor’ for an undisclosed price.  Is Howard Schilit buying back his old company?

Schilit sold CFRA to TA Associates, a private equity firm, in 2003 for around $60 million or about 3.3x revenues.  TA Associates had ambitions of doing a research rollup using CFRA as a core property.  CFRA revenues declined after the sale, however, and the rollup did not come to pass.  TA Associates was able to turn around the revenue decline and resell CFRA to Riskmetrics in August 2007 for approximately what it paid.

CFRA remained separately branded, even after MSCI bought Riskmetrics in 2010.  More recently, CFRA was tucked in with MSCI’s governance products under ISS.  We get the sense that CFRA has been languishing, which is not dispelled by MSCI’s laconic disposition of the property.

The U.S. Securities and Exchange Commission has laid out its priorities for 2013, and insider trading remains at the top of its list.  Similarly, fraud detection remains a high priority for its examination staff.

In late February, the SEC holds its annual conference in which SEC Commissioners and senior leadership at the agency set forth priorities and objectives for the coming year.  Called “SEC Speaks,” the event provides an overview of SEC priorities for the coming year.

According to the Corporate Law Report, insider trading remains a top SEC agenda.  Sanjay Wadhwa, the senior associate director of Enforcement in the SEC’s New York office, stated that insider trading is still a high-priority area.  Since the Raj Rajaratnam prosecution, the SEC has brought 175 enforcement actions alleging insider trading against 435 defendants involving illicit profits in the neighborhood of $900 million.  Wadhwa noted that hedge fund insider trading will continue to take up much of the SEC’s attention as the Galleon, and related expert network investigations, have revealed a “treasure trove of information.”

Citing the SEC’s recent emergency action asset freeze of a Swiss Goldman Sachs account in which unknown traders are suspected of insider trading in connection with the Heinz merger announcement, Wadhwa said that the SEC will continue to aggressively litigate actions in which suspicious trading is observed in offshore accounts and request asset freezes to preserve the status quo while the SEC investigates.

David Bergers, the acting deputy director of Enforcement, noted that the SEC utilizes a forensic lab that mines data to detect “outliers” in trading activity for potential investigation.   Miami Regional Director Eric Bustillo commented that in the past year, a number of regulated entities disclosed securities law violations to the SEC and then fully cooperated with the SEC’s own investigation.  These were significant factors that SEC staff took into account when recommending that the SEC enter into non-prosecution or deferred prosecution agreements, rather than commencing an enforcement action.  (Source: Perkins Coie, published in JDSupra LawNews)

Another priority is Foreign Corrupt Practices Act violations.  Kara Brockmeyer, chief of the Enforcement Division’s FCPA specialized unit, noted that compliance programs are not ‘one size fits all.’  A compliance program should be designed to minimize risks specific to the company’s business and should evolve over time.

Separately, the SEC’s Office of Compliance Inspections and Examinations published its priorities for 2013.  Not surprisingly, fraud detection is at the top of the OCIE’s list.  SEC examiners are trained to refer questionable activities they uncover to the SEC’s Enforcement Division.  Conflicts of interest were also cited as an important area for examination.

The OCIE continues to place a high priority on examining new registrants, the majority of which are hedge funds or private equity funds.  Since early 2012, approximately 2,000 investment advisers have registered with the SEC for the first time. The vast majority of these new registrants are advisers to hedge funds and private equity funds that have never been registered, regulated, or examined by the SEC.

The SEC is trying to examine as many of the new registrants as possible.  It is also using its analytic tools to prioritize examinations of hedge funds “where the staff’s analytics indicate higher risks to investors relative to the rest of the registrant population, or there are indicia of fraud or other serious wrongdoing.”

Based on the SEC’s priorities for 2013, it is safe to assume that scrutiny of inside information risk will continue to be a priority for investment advisors generally, and hedge funds specifically.

Wedge Partners, a technology research boutique, has decided to outsource its trading to Rosenblatt Securities.  The move will save money for Wedge, which previously had its own trading desk, as well as offer clients additional execution capabilities such as algorithms, options trading or sponsored DMA.

Wedge is a fifteen-person boutique based in Denver.  Wedge’s research methodology is based primarily on gathering and analyzing channel trends for the technology sector through a network of industry contacts.  The firm has 5 research analysts, including founder Kirk Adams.

Wedge Partners has an affiliated broker-dealer, Wedge Securities, and an all employees of Wedge are registered.  Previously, Wedge maintained its own trading desk for clients who wished to pay for its research through direct trades.  Under the arrangement with Rosenblatt, the three traders on Wedge’s trading desk will be dual-registered representatives with both Wedge and Rosenblatt and execute trades solely at Rosenblatt.  Head trader William Walters and traders Ryan Smith and Justin Weil continue to be carried on Wedge’s books.  Two other traders were let go.

In addition to the savings on the traders, Wedge will no longer pay trading infrastructure costs.   Rosenblatt will supply the trading technology and back office and compliance for the trading related activities.  Wedge Partners will maintain its own compliance officer for its remaining operations.

Wedge will also continue to maintain 5 institutional salespeople, who will service existing accounts.   Rosenblatt has its own research sales staff which will offer Wedge research to Rosenblatt’s clients.

Rosenblatt Securities is well known for its market structure analysis and its market structure conferences are well attended by buy side traders.  It has recently been expanding its research offerings, like many other agency brokers who seek greater commission flow in a shrinking commission environment.

Last year Rosenblatt added an analyst to cover exchanges and other market-structure-related companies, a natural extension to its existing market structure analysis.    When WJB Capital folded last January, Rosenblatt hired WJB’s market strategist, Brian Reynolds.  Concurrent with its deal with Wedge, it announced it was hiring an energy analyst to cover stocks, primarily in the exploration and production sector.

The joint press release can be found at http://www.rblt.com/uploads/documents/news/Wedge-Rosenblatt%20Release_FINAL.pdf.

ClearForest, a Thomson Reuters subsidiary which provides tools for data mining text and social media, suffered a severe attack by a group affiliated by Anonymous.  A group called Par:AnoIA is distributing files it obtained from an unsecured server in ClearForest’s offices outside of Tel Aviv, including the source code for ClearForest’s proprietary data mining application, OneCalais.

The attack was apparently prompted by a project initiated by Bank of America to identify potential hacking threats.  Bank of America described it as a “pilot program” for monitoring publicly available information in an effort to identify security threats.  Bank of America apparently hired TEKSystems, an IT outsourcing subsidiary of Allegis Group, to manage the project.  The project used ClearForest to monitor hacking activity on social media platforms and public Internet Relay Chat (IRC) channels.

Unfortunately, ClearForest’s systems were not well secured.  The press release issued by Par:AnoIA claimed that its theft was not a hack because it was so easily obtained: “The source of this release has confirmed that the data was not acquired by a hack but because it was stored on a misconfigured server and basically open for grabs.”

ClearForest is not the first research-related victim of Anonymous.  Stratfor Global Intelligence, a geopolitical research firm based in Austin Texas, was hacked in 2011 by Anonymous which stole unencrypted credit card information of Stratfor customers, as well as over 5 million internal emails which were then turned over to Wikileaks.  Wikileaks published Stratfor’s internal emails in an attempt to portray the firm as a quasi-intelligence agency.

Nearly a third of the ClearForest information stolen by Anonymous was a project unrelated to Bank of America’s project.  It appears that ClearForest was creating a database of compensation information encompassing approximately 200,000 executives, primarily from securities filings.  The compensation information was contained in a folder labeled “Bloomberg”, so the hackers speculated that the information might have been related to a project on behalf of Bloomberg.  They also noticed that data entries were entries are tagged with “reuterscompanycontent”, apparently not realizing that ClearForest is a subsidiary of Thomson Reuters.  It is doubtful that Bloomberg would use a subsidiary of Thomson Reuters for a project.

Reuters acquired ClearForest in 2007 for an undisclosed sum.  At the time, ClearForest had around 30 employees and 50 clients, primarily corporations.   Most of its operations were based in a suburb of Tel Aviv, the site of the recent hack.  Competitors to ClearForest include Connotate, which has been more actively marketing into the financial community, Mozenda and FirstRain.

The hacked data can be found at http://par-anoia.net/releases2013.html#bofa

New York, NY – Footnoted.com, a well-known financial website used by both retail and professional investors to investigate potential issues buried deep in public companies’ SEC filings, relaunched its website on March 1^st after completing a management buy-back from Morningstar in September 2012.  Morningstar acquired Footnoted.com from Michelle Leder in 2010.

For more details on the Footnoted buy-back from Morningstar, refer to a previous blog posted on Integrity ResearchWatch http://www.integrity-research.com/cms/2012/09/26/footnoted-bought-back-from-morningstar/

The Value of Footnoted.com

The premise of the Footnoted service is made clear by the product’s founder, Michelle Leder, “There are no accidents in SEC filings.  Everything is there for a reason.”  Anything that has been included in a regulatory filing has been actively reviewed by company management and their attorneys to provide sufficient transparency so they don’t incur excess shareholder liability.

Unfortunately, few investors have the experience or patience to pore over the extensive and sometimes complex filings made by public companies.  This is where Footnoted.org provides its clearest value to investors, as their team leverages both technology and a team of experienced analysts to filter these filings to help flag hidden opportunities and early signs of potential problems.  Leder and her team build a mosaic based on multiple filings by the same company to provide insight that is typically three to six months ahead of the market.

The footnoted*Pro subscription service is geared primarily to long/short equity hedge funds who are looking for actionable developments buried in a company’s 8-K, 10-K, or 10-Q filings that indicate public companies have unforeseen issues or opportunities which they can profit from.

Enhancements to the New Site

The newly launched Footnoted.com site includes a number of enhancements from its previous incarnation.  The most noticeable change is the fact that both Footnoted’s retail (free) and professional (subscription) content are now seamlessly integrated into one site, whereas previously this content was available on two separate sites.

Another one of the main changes to the new Footnoted.com site is the inclusion of near real-time “Red Flag Alerts” which go out to subscribers within 24 hours of a filing’s submission.  These alerts highlight what the Footnoted team feel are the most important developments in an SEC filing.  Previously, Footnoted sent out these alerts every Sunday evening.

The third major enhancement to Footnoted.com is the enhanced search capability that users can now access.  Now subscribers can search the Footnoted database for everything they have ever written about a particular public company, topic, or keyword.

For example, one of the really interesting topics that Footnoted categorizes all its filings by is called the “Friday Night Dump”.  These are the filings made by public companies in the 90 minutes after the stock market closes on Friday and when the SEC stops accepting filings on that day.

According to Footnoted, approximately 8% of all 8-Ks are filed during the last 90 minutes of the day on a Friday.  And while this is not a red flag in itself, it is often during this period when many public companies send in their filings in the hopes that analysts, investors and journalists will overlook them.  Could this be because these companies have something they wish to bury in their filings?  Some would say so.

Product Deliverables and Commercial Terms

Whereas Footnoted.com provides some free content to retail investors, the bulk of its analytical content is geared towards its subscription-based footnoted*Pro service.  Pro users received all the content on its website which includes approximately 5 in-depth research reports on various public companies per month, and 60 to 70 Red Flag Alerts per week depending on the filings calendar.

The annual subscription for footnoted*Pro is $10,000 per user per year, though they firm also has multi-user and enterprise wide pricing available as well.  Subscribers who wish to sign up for a shorter period can do so for $3,000 per quarter.

For more details about the footnoted*Pro service or the commercial terms associated with becoming a subscriber, email subscribe@footnoted.com or call 855-58-NOTED.