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.
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.
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 previously issued financial statements due to error or irregularity8-K Item 4.02, 10-K/A
Late FilingMediumFailure to file 10-K or 10-Q by deadline; NT filing indicates delayNT 10-K, NT 10-Q
CFO/CEO DepartureMediumDeparture of key executive, especially if unexpected or during sensitive period8-K Item 5.02
Delisting NoticeCriticalNotice from exchange regarding non-compliance with listing standards8-K Item 3.01
SEC EnforcementHighSEC investigation, Wells notice, or enforcement action disclosed10-K Risk Factors, 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
See also: Attention Queue | Insider Signals