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Analysis traps: the cases and the papers behind the rules
34 public cases (SEC complaints and orders, FINMA, FCA, FRC, Federal Reserve and Bank of England reviews, one 10-K contrast) and 27 papers, each tied to the rules it illustrates: the mechanism, the misreading, what to check and the normal explanation. The facts are stated as the cited material states them at its date; an allegation stays an allegation, a settlement a settlement. No case is a verdict on any company the rules run on today.
The rules on this site read structured figures; most cases here turned on information that was not public at the time (internal emails, side agreements, bank records). The library teaches the mechanism and what public evidence would have raised the question; it does not claim the rules would have caught the case.
Cases
C01 · WorldCom SEC complaint, 2002
What the material describes: The SEC's 2002 complaint alleged improper accounting, including the capitalisation of operating costs, that hid expenses. Primary source →
The misreading it illustrates: Costs moved to the balance sheet look like profit and like investment.
What to check: Capitalised costs and operating costs tracked together; the cash flow statement's investing line against the assets created.
The normal explanation: Genuine long-lived asset spending is capitalised properly.
C02 · Xerox SEC complaint, 2002
What the material describes: The SEC's 2002 complaint alleged that equipment revenue was recognised early; the settlement required a restatement among other things. Primary source →
The misreading it illustrates: Revenue booked before the cash: growth that the collections do not follow.
What to check: Contract allocation and the timing of recognition; cash and revenue on two timelines.
The normal explanation: A real change in the lease portfolio can explain part of such a shift.
C03 · Sunbeam SEC administrative proceeding
What the material describes: The SEC's historical administrative material concerned accounting problems including channel stuffing. Primary source →
The misreading it illustrates: Quarter-end shipments counted as demand.
What to check: Shipments at the quarter's end against later returns; collections after the shipment.
The normal explanation: Stocking up before a season is not by itself stuffing.
C04 · Bristol-Myers Squibb SEC litigation release, 2004
What the material describes: The SEC's 2004 case material alleged excess channel inventory and related improper revenue recognition. Primary source →
The misreading it illustrates: Sell-in treated as sell-through.
What to check: Channel inventory against end demand; when the channel data are missing, say so.
The normal explanation: Channel data missing is unknown, not a finding.
C05 · Kraft Heinz SEC order, 2021
What the material describes: The SEC's 2021 order concerned unearned supplier discounts and improper cost savings; the company settled. Primary source →
The misreading it illustrates: Procurement savings counted before the conditions were met.
What to check: The contract conditions behind supplier savings; the bridge from purchases to margin.
The normal explanation: A real volume discount is a real saving.
C06 · Under Armour SEC order, 2021
What the material describes: The SEC's 2021 order concerned orders pulled forward to meet growth without adequate disclosure; the company settled. Primary source →
The misreading it illustrates: Growth that came from the next quarter.
What to check: Revenue migrating between quarters: the source of growth as well as its recognition.
The normal explanation: A customer asking for early delivery is normal.
C07 · Dell SEC litigation release, 2010
What the material describes: The SEC's 2010 case alleged undisclosed payments from Intel that supported earnings, and reserve accounting problems. Primary source →
The misreading it illustrates: Core profit that depended on supplier support.
What to check: The bridge from the core business to supplier support; reserves released into profit.
The normal explanation: Transparent, disclosed rebates are not improper.
C08 · GE Power: estimated profit SEC order, 2020
What the material describes: The SEC's 2020 order concerned insufficient disclosure of how cost-estimate reductions contributed to profit. Primary source →
The misreading it illustrates: Profit from a changed estimate looks like profit from efficiency.
What to check: Estimate changes apart from real efficiency; the project-estimate bridge.
The normal explanation: Project costs really did fall in some cases.
C09 · GE: the source of the cash SEC order, 2020
What the material describes: The same 2020 order noted that growth in industrial cash collections related to sales of receivables inside the group. Primary source →
The misreading it illustrates: Segment cash that is not group cash.
What to check: Segment cash against consolidated cash; receivables transferred inside the group; the eliminations.
The normal explanation: Disclosed internal funding arrangements are legitimate.
Rules: A01 FCF growth = the business improved, B02 receivables growing = future cash is certain
C10 · Luckin Coffee SEC complaint, 2020
What the material describes: The SEC's 2020 complaint alleged fabricated sales through related parties, among other things; the company agreed to settle. Primary source →
The misreading it illustrates: Volume and transactions taken as real from the statements alone.
What to check: Stores, orders and cash crossed; public statements cannot replace bank and order confirmations.
C11 · Diamond Foods SEC case, 2014
What the material describes: The SEC's 2014 case alleged that walnut costs were pushed into later periods. Primary source →
The misreading it illustrates: Costs in the wrong period make the margin.
What to check: Payment, receipt and the expense's period kept apart; the purchase-cost bridge across periods.
The normal explanation: A normal prepayment is not a deferred cost.
C12 · Newell Brands SEC order, 2023
What the material describes: The SEC's 2023 order concerned the disclosure of core sales growth and sales pulled forward, among other things; the company settled. Primary source →
The misreading it illustrates: A non-GAAP growth definition that drifts.
What to check: The definition of the growth measure, version by version, against the trend in the reported figures.
The normal explanation: A clearly disclosed seasonal adjustment is normal.
C13 · Valeant SEC order, 2020
What the material describes: The SEC's 2020 order concerned revenue recognition and misleading GAAP/non-GAAP disclosure; the company settled. Primary source →
The misreading it illustrates: Acquired growth and adjusted figures taken at face value.
What to check: Control relationships with the channel; the allocation of revenue; GAAP beside the adjusted figures.
The normal explanation: Not every acquisition-led growth is a problem.
C14 · Satyam SEC complaint, 2011
What the material describes: The SEC's 2011 complaint alleged false invoices and bank records that inflated revenue and cash; the company settled. Primary source →
The misreading it illustrates: Cash on the balance sheet believed without evidence.
What to check: The evidence behind the cash balance; low interest income on a large balance is a clue.
C15 · HealthSouth SEC complaint, 2003
What the material describes: The SEC's 2003 complaint alleged inflated earnings and assets to meet earnings expectations. Primary source →
The misreading it illustrates: Profit and assets that rise together to meet the forecast.
What to check: Earnings and asset quality side by side.
Rules: B08 adjusted profit = economic profit, D03 EPS growth = profit growth
C16 · Walgreens SEC order, 2018
What the material describes: The SEC's 2018 order concerned insufficient disclosure of the risk of missing a forecast earnings target; the company settled. Primary source →
The misreading it illustrates: Guidance read as achievable without the path to it.
What to check: Guidance revisions and the path to achieving them.
The normal explanation: A forecast that was wrong is not by itself unlawful.
C17 · Nikola (the company) SEC settlement, 2021
What the material describes: The company's 2021 settlement concerned misleading statements about products, technology and business prospects. Primary source →
The misreading it illustrates: Prototype, production, delivery and revenue treated as one stage.
What to check: The milestones from technology to commerce, each with its evidence.
C18 · Boeing SEC order, 2022
What the material describes: The SEC's 2022 order concerned public statements after the 737 MAX accidents that misled investors; the company settled. Primary source →
The misreading it illustrates: A safety event not connected to deliveries, cash and liabilities.
What to check: The event's path to the financial statements; a financial score alone does not cover safety risk.
C19 · Infinity Q SEC litigation release, 2023
What the material describes: The SEC's 2023 settled litigation concerned mispriced fund NAVs; 2022 material described altered inputs to a third-party model. Primary source →
The misreading it illustrates: A third-party model taken as an independent price.
What to check: Who chose the model, who changed the inputs, who approved the overrides, whether the original quotes were kept.
The normal explanation: A reasonable parameter change can be legitimate.
C20 · Silicon Valley Bank Federal Reserve review, 2023
What the material describes: The Federal Reserve's 2023 review discussed management and supervision that did not adequately address the risks. Primary source →
The misreading it illustrates: Assets on the books taken as cash available in time.
What to check: Asset duration, deposit concentration and liquidity together; not an accounting-fraud case.
Rules: C02 low net debt = no refinancing risk, J06 A bank's low P/E and high profit = safe
C21 · The UK LDI episode Bank of England, December 2022
What the material describes: The Bank of England's 2022 report described the feedback between margin calls and forced gilt sales. Primary source →
The misreading it illustrates: Economic solvency mistaken for cash on the day.
What to check: The margin → sale → price loop; a hedge can itself create a cash call.
C22 · Interface / Fulton (the EPS Initiative) SEC enforcement annual report, 2020
What the material describes: The SEC's 2020 enforcement report described two settled accounting cases under its EPS Initiative. Primary source →
The misreading it illustrates: Small estimate changes that land EPS just on the target.
What to check: The distribution of results around the EPS threshold.
The normal explanation: A small beat by itself proves nothing.
C23 · Waste Management: expenses and depreciation SEC complaint and release, 2002
What the material describes: The SEC alleged that past management inflated profit through unsupported salvage-value and useful-life assumptions and deferred costs, and moved items between expense lines. Primary source →
The misreading it illustrates: Lower depreciation and steadier profit read as better asset efficiency.
What to check: Asset lives and salvage values, depreciation, maintenance, gains and losses on disposal; classification shifting (P19).
The normal explanation: A genuinely longer useful life lawfully lowers depreciation; it needs asset-level or operating evidence.
Rules: A01 FCF growth = the business improved, B08 adjusted profit = economic profit
C24 · Hertz: accounting misstatements SEC order, 2019
What the material describes: The SEC's 2019 order against a former controlling officer described accounting errors in damaged-vehicle expense, licence-plate amortisation and bad-debt reserves across several periods; the company settled in 2018. Primary source →
The misreading it illustrates: Several small estimate changes that together move profit.
What to check: The joint timeline of vehicle costs, amortisation, receivable reserves and accounting-method changes.
The normal explanation: Fleet mix and actual bad debts do fluctuate.
C25 · Credit Suisse and Greensill FINMA enforcement conclusion, February 2023
What the material describes: FINMA found serious shortcomings in risk management and organisation; the asset manager's grasp and control of the specific claims was insufficient, and claim selection and insurance relied on Greensill. Primary source →
The misreading it illustrates: 'Supply-chain finance plus insurance' read as independently verified and low risk.
What to check: The claims in detail, the selection rights, the insurers, the concentration and who monitored the risk.
The normal explanation: Real receivables with adequate independent review are a different thing.
C26 · Credit Suisse and Archegos FINMA enforcement conclusion, July 2023
What the material describes: FINMA's material described synthetic equity positions, the bank's hedges and a concentrated client book; when the client could not cover losses, the bank sold the hedging shares at a loss. Primary source →
The misreading it illustrates: Hedging the market risk mistaken for removing the client's default and liquidation risk.
What to check: The client's total exposure, margin, limit breaches, concentration and liquidation discounts under stress.
The normal explanation: Adequate margin and timely limit enforcement keep such business controlled.
C27 · Tesco trading update FCA, 2017
What the material describes: The FCA's 2017 market-abuse and redress announcement concerned a 2014-08-29 trading update that gave a false or misleading impression of the value of shares and bonds. Primary source →
The misreading it illustrates: An official trading update taken without its later correction.
What to check: The versions of the announcement, the dates, the later corrections and the financial information of the same period.
The normal explanation: A changed forecast is not by itself market abuse; it turns on the basis of the original statement and the regulator's finding.
C28 · Carillion audit FRC sanctions, October 2023
What the material describes: The FRC's 2023 sanctions against the auditor and two former partners described multi-year audit failings, many around large construction and service contracts. Primary source →
The misreading it illustrates: An unqualified opinion taken as a substitute for reading the contract estimates.
What to check: Contract estimates, revenue recognition, asset recoverability and the audit's evidence.
The normal explanation: Estimation uncertainty is not misstatement; the supporting evidence decides.
Rules: B02 receivables growing = future cash is certain, B08 adjusted profit = economic profit
C29 · HP printing supplies channel SEC order, 2020
What the material describes: The SEC's 2020 order described incentives that pulled sales forward and incomplete channel-health disclosure whose inventory scope did not reach the lower tiers of distribution. Primary source →
The misreading it illustrates: A channel metric that looks complete but covers one tier.
What to check: The channel's tiers, the disclosure's definition, inventory against margin, the sales incentives.
The normal explanation: A fall in tier-one inventory can come with real end sales; it needs downstream evidence.
C30 · Orthofix revenue conditions SEC release, January 2017
What the material describes: The SEC's 2017 release stated that the company admitted wrongdoing and settled; the accounting part concerned revenue recognised while collection remained conditional or significant payment extensions were granted. Primary source →
The misreading it illustrates: Shipment taken as sufficient for the revenue recognised.
What to check: Contract conditions, return rights, payment terms, side agreements and collections.
The normal explanation: Lawful credit sales still recognise revenue; the terms and the standard decide.
C31 · MiMedx distributor arrangements SEC complaint, November 2019
What the material describes: The SEC's 2019 complaint alleged revenue recognised early through undisclosed side arrangements with distributors, involving return rights or payment after end sales. Primary source →
The misreading it illustrates: The main contract and the receivable balance taken as the whole deal.
What to check: Contracts and side agreements, distributor collections, returns, end sales.
The normal explanation: A properly disclosed and accounted consignment arrangement is normal.
C32 · Comscore non-cash transactions SEC order, 2019
What the material describes: The SEC's 2019 order and the settlements described revenue from non-monetary data exchanges recognised at improperly raised fair values, and misleading operating metrics. Primary source →
The misreading it illustrates: Revenue growth that came from a valuation assumption, not new cash demand.
What to check: Cash against non-cash revenue, the links between the transactions, independent pricing and customer demand.
The normal explanation: A non-monetary exchange with commercial substance under the standard is not improper.
Rules: B02 receivables growing = future cash is certain, B08 adjusted profit = economic profit
C33 · Akorn gross-to-net SEC complaint, March 2018
What the material describes: The 2018 complaint concerned 2014 revenue and profit misstatements including errors in the accrual process for rebates and other contractual allowances. Primary source →
The misreading it illustrates: Stable gross sales taken as a reliable net-revenue estimate.
What to check: The gross-to-net reconciliation, rebates, allowances, return reserves and the later settlements.
The normal explanation: A changed customer or payer mix can lawfully change the rebate rate.
Rules: B02 receivables growing = future cash is certain, B08 adjusted profit = economic profit
C34 · McKesson: a GAAP vs adjusted contrast Company 10-K, fiscal 2019
What the material describes: The company's fiscal 2019 results and 10-K disclosed items, including goodwill impairment, that affect the comparison of GAAP and adjusted results. Not a regulatory case. Primary source →
The misreading it illustrates: A GAAP-to-adjusted gap called fraud, or a non-cash charge dismissed as no loss of capital.
What to check: Net income, the impairment, the adjustments and cash flow rebuilt; the acquisitions' cost traced.
The normal explanation: A non-cash impairment is not a current cash outflow, but it can reflect the value of past investment.
Papers
| Paper | Finding | Limit for this site | Rules |
|---|---|---|---|
| P01 Sloan, 1996 Do Stock Prices Fully Reflect Information in Accruals and Cash Flows About Future Earnings? | The cash and accrual parts of earnings persist differently; the market may not fully distinguish them. | Earnings split and their later cash conversion; high accruals are not fraud. | A01 FCF growth = the business improved, B02 receivables growing = future cash is certain |
| P02 Beneish, 1999 The Detection of Earnings Manipulation | Screens manipulation risk from statement distortions and incentives. | The M-score is a screen only; structural change also scores high. | B02 receivables growing = future cash is certain, B08 adjusted profit = economic profit |
| P03 Dechow, Ge, Larson, Sloan, 2011 Predicting Material Accounting Misstatements | Studies misstatement characteristics on SEC enforcement samples and builds the misstatement F-score. | Not Piotroski's F-score; enforcement selection bias must be controlled. | B02 receivables growing = future cash is certain, B08 adjusted profit = economic profit |
| P04 Novy-Marx, 2013 (working paper 2010) The Other Side of Value: The Gross Profitability Premium | Gross profit over assets adds information to value measures. | A valuation × quality contrast; a historical premium is not a guaranteed return. | E02 low P/E at a cyclical peak = undervalued |
| P05 Roychowdhury, 2006 Earnings Management through Real Activities Manipulation | Discounts, overproduction and cuts to discretionary spending as real-activity management. | An abnormal operating residual does not prove intent; a demand shock explains it too. | A01 FCF growth = the business improved, B02 receivables growing = future cash is certain |
| P06 Dechow, Dichev, 2002 (public draft 2001) The Quality of Accruals and Earnings: The Role of Accrual Estimation Errors | Earnings quality from the estimation errors in matching accruals to cash flows. | The original uses future cash flows; a live model must lag or be redesigned, never look ahead. | B02 receivables growing = future cash is certain |
| P07 Piotroski, 2000 Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers | Historical financial information separates strong from weak among high book-to-market stocks. | The original universe matters; not to be applied mechanically to growth stocks. | E02 low P/E at a cyclical peak = undervalued |
| P08 Loughran, McDonald, 2011 When Is a Liability Not a Liability? Textual Analysis, Dictionaries, and 10-Ks | General negative-word dictionaries misjudge financial text. | Keep negation, conditionals, section and context; 'liability' is not automatically negative. | B08 adjusted profit = economic profit |
| P09 Harvey, Liu, Zhu, 2016 (working paper 2014) … and the Cross-Section of Expected Returns | Multiple testing raises the bar for a factor's significance. | Register every rule and tuning attempt; a fixed t-threshold is not a universal truth. | method, not one rule |
| P10 Hou, Xue, Zhang, 2020 (working paper 2017) Replicating Anomalies | Re-examines many anomalies for sensitivity to microcaps, weighting and statistical settings. | Working and final versions differ in variable counts; lock the version when citing. | method, not one rule |
| P11 Bailey, Borwein, López de Prado, Zhu, 2015 The Probability of Backtest Overfitting | Strategy selection and out-of-sample decay; a framework for the probability of backtest overfitting. | Needs the set of candidate strategies; PBO is not the probability of a future loss. | method, not one rule |
| P12 Bailey et al., 2014 Pseudo-Mathematics and Financial Charlatanism | A small search over configurations can produce beautiful simulated results. | Keep the failed experiments and the number of trials, not only the winners. | method, not one rule |
| P13 DellaVigna, Pollet, NBER 2005 Investor Inattention, Firm Reaction, and Friday Earnings Announcements | Attention and under-reaction to earnings information. | The timing of announcements may be endogenous; not a rule to buy Friday reporters. | method, not one rule |
| P14 Jensen, Kelly, Pedersen, 2023 Is There a Replication Crisis in Finance? | Evidence and method that differ from the pessimistic replication conclusions. | Compare studies on one risk adjustment, factor definition and sample; do not pick the papers that agree. | method, not one rule |
| P15 Brunnermeier, Pedersen, 2009 (NBER 2007) Market Liquidity and Funding Liquidity | Market and funding liquidity interact and can spiral. | Put sale discounts, margin and funding in one scenario, not only the book value; a mechanism, not a prediction. | C02 low net debt = no refinancing risk |
| P16 Dechow, Sloan, Sweeney, 1995 Detecting Earnings Management | Compares accrual models' power to detect earnings management; the source of the Modified Jones line of work. | An accrual anomaly is not manipulation; unusual performance misspecifies the model. Output residuals and limits, never a 'fraud amount'. | B02 receivables growing = future cash is certain |
| P17 Kothari, Leone, Wasley, 2005 Performance Matched Discretionary Accrual Measures | Performance matching changes the reliability of discretionary-accrual inferences. | Add ROA-matched controls and keep the matching distance; never choose controls to get a low residual. | B02 receivables growing = future cash is certain |
| P18 Richardson, Sloan, Soliman, Tuna, 2005 Accrual Reliability, Earnings Persistence and Stock Prices | Accrual reliability, earnings persistence and prices. | Adding all accruals together loses the differences in estimation reliability; split them. | B02 receivables growing = future cash is certain, B08 adjusted profit = economic profit |
| P19 McVay, 2006 Earnings Management Using Classification Shifting | Expenses shifted inside the income statement: core earnings improve while net income does not. | Checking net income against cash flow alone misses a distorted core-earnings story; bridge core, special items and net income. | B08 adjusted profit = economic profit |
| P20 Dechow, Hutton, Kim, Sloan, 2012 Detecting Earnings Management: A New Approach | A new test for accrual-based earnings management built on reversals. | A single-period anomaly may be a temporary estimate; later periods can only be used after the fact. | B02 receivables growing = future cash is certain |
| P21 Jensen, 1986 Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers | Free cash flow, agency conflict, capital structure and takeovers. | High cash generation can come with poor investment; the paper's FCF is cash after positive-NPV projects, not CFO − capex. | A01 FCF growth = the business improved |
| P22 Shleifer, Vishny, 1997 The Limits of Arbitrage | Professional arbitrage is limited by funding and investor behaviour. | A correct valuation does not guarantee the trade survives a wider divergence; show funding horizon apart from value. | E07 A precise DCF value = the true value |
| P23 Pontiff, 1996 Costly Arbitrage: Evidence from Closed-End Funds | Arbitrage costs and the divergence of closed-end fund prices from value. | A fund discount is not a riskless return; replication, funding and holding costs matter. | method, not one rule |
| P24 Rhodes-Kropf, Robinson, Viswanathan, 2005 Valuation Waves and Merger Activity: The Empirical Evidence | Decomposes market-to-book and relates misvaluation to merger activity. | Merger waves may carry pricing; size is not synergy; record consideration and later returns, and do not call a stock deal overvalued by itself. | E02 low P/E at a cyclical peak = undervalued |
| P25 Cohen, Frazzini, 2008 Economic Links and Predictable Returns | Customer–supplier links and the response to information. | Customer shocks matter; a named relationship is not a quantified revenue exposure. Keep the dates the relationship was disclosed. | B02 receivables growing = future cash is certain |
| P26 Ball, Shivakumar, 2008 How Much New Information Is There in Earnings? | The quarterly announcement's incremental information against the year's flow. | A better year on year does not mean the announcement day carried that much news; do not generalise averages to every report. | method, not one rule |
| P27 Kelly, Pruitt, Su, 2019 (working paper 2018) Characteristics Are Covariances: A Unified Model of Risk and Return | Firm characteristics and time-varying risk exposures. | A characteristic strategy's return may be risk compensation, not a market error; compare with a simple baseline first. | method, not one rule |
Three limits on reading the cases
This is a library of mechanisms: a company that resembles a historical case is not thereby the next one, and the site never says so. The internal evidence in enforcement cases (emails, customer records, bank statements) was usually not public at the time; what was visible beforehand and what came out afterwards are kept apart, or the library would fake foresight. Enforcement samples are the cases that were found, investigated and within a jurisdiction; a company with no case is not a clean negative.
Each rule reads the company's own filings by a fixed formula and says what would explain the same figures innocently. A triggered rule is a question to verify, not a finding of manipulation, and not a view on the stock. Missing data is shown as missing, never as clear. Not investment advice.