Friday nights aren't just for high school football in Texas...
It's when public companies often wait to file bad news with the Securities and Exchange Commission ("SEC"), which they hope will go unnoticed since by the time the news drops everybody on Wall Street has gone home.
They've been doing it for years... no, make that decades. I'm stunned it's still a thing, since thanks to the Internet, social media, and millions of eyeballs focused everywhere, little goes undetected these days.
But it is still a thing, so much so that my friend Michelle Leder has dubbed it the "Friday Night Dump."
The Friday Night Dump is something she has been rummaging through for as long as I've known her, which is a very long time.
Michelle is an SEC filings sleuth...
She founded the website www.footnoted.org and also writes a column for Bloomberg Opinion.
She's the queen at finding nuggets that companies, their lawyers, and PR folks still hope nobody will see.
After all, why in the world would companies still wait until late Friday to file bad news?
Michelle has no idea, telling me her best guess:
It's just habit. It's just the way they've always done it and the way they'll always do it.
And, boy, do they! But it's not just on Fridays...
For all types of news, including earnings, management changes, and other items, companies file something known as an 8-K.
A general rule of thumb I've noticed: If it's filed in the morning, it's usually good news. If it's filed after the close, it's likely bad news. The SEC is open for filings from 6 a.m. to 10 p.m. Eastern, but 5:30 p.m. is the cutoff to be posted to the SEC's website that day.
As Michelle points out, on any day, more 8-Ks are filed in the 90 minutes before the SEC's formal close than during the business day...
So are, surprisingly, annual and quarterly filings – 10-Ks and 10-Qs.
The artificial intelligence research firm Bedrock AI, which specializes in using AI to spot trouble in SEC filings, recently wrote...
It's no secret that companies take timing into consideration when they publish a securities filing. The vast majority of 10-Ks and 10-Qs (~60%) are filed between 4 PM and 5:30 PM, after markets close but while EDGAR is still accepting filings. This gives stakeholders time to read and digest the information before markets open the next day.
If that's not obvious enough, this chart from Bedrock of filing times of 10-Ks and 10-Qs should be...
Source: Bedrock AI
Obviously, not every filing after the bell is reason to worry. Bedrock points out, for example, that some large caps routinely file closer to 6 p.m.
It's those that deviate that you should worry about.
Examples in annuals and quarterlies cited by Bedrock include...
- A 10-Q filed at 9:41 p.m. on August 3 that disclosed a regulator investigation into the trading of sovereign securities, a $130 million write-down on Russian bonds, and a $70 million asset impairment.
- Nvidia's (NVDA) 10-K on March 17, which disclosed a data hack and a terminated purchase agreement with Softbank.
As for the Friday Night Dumps, Michelle says they always save the best for last, with those trying best not to be seen filing in the final 10 minutes before the formal close. Last Friday, for example – on her Twitter account – among those she flagged...
- At 5:20 p.m., International Paper (IP) filed an 8-K that disclosed a $310 million settlement with the IRS.
- And at 5:29 p.m. – one minute before formal closing time – Tesla (TSLA) founder Elon Musk filed a formal letter saying that Twitter's (TWTR) payment to a Twitter whistleblower violated terms of his deal to acquire the company.
And that's nothing: The number of filings dumped on a Friday before a three-day weekend are often the most active of all...
Or as Michelle put it in a tweet the Friday before Labor Day...
The special bonus on holiday weekends, she adds, is that the fun usually starts just 30 minutes before the close.
My favorite holiday filings story involved the old Computer Associates, now CA Technologies. In 1999, on the Friday before the July 4 holiday (which fell on a Sunday), the company filed that it had changed auditors.
As you might expect, while most people were officially off on Monday, a lot of folks also took that Friday off, too.
That Saturday, a source called me with the news about the filing (and to date myself, said source probably used a messenger to send it over).
I worked all weekend on it, even contacting the company, which said the change wasn't a sign of trouble...
Still, it was noteworthy because Computer Associates' accounting had been under fire. As I wrote bright and early that Tuesday...
There wasn't a press release, and maybe it's not a big deal, but: On Friday, Computer Associates disclosed in a Securities and Exchange Commission filing that it had booted its longtime auditor, Ernst & Young, in favor of KPMG. (Nothing like disclosing it on a day half the world is on vacation!)
Long story short... A few years later, the SEC sued the company for accounting fraud from 1998 to 2000. The former CEO was sentenced to 12 years in prison.
And that's the point. Even back then, when the Internet was in its infancy – and long before social media – word generally got out.
Today, if it's important, it always gets out, which gets back to our original question: Why are Friday night filings still a thing?
I suppose habits, no matter how annoying, counterproductive, and downright absurd, are hard to break.
As always, feel free to reach out via e-mail by clicking here. I look forward to hearing from you.
September 16, 2022