The Red-Flag Tape

The escalation ladder

Accounting distress shows up in a predictable order. We measured how far the stock actually fell after each rung — and how often — across years of SEC filings. Heavier rung → deeper, more reliable drop. (The market-relative figure is a footnote; a short is usually a bearish view, not a bet against owning the index.)

*Significant-deficiency horizons are survivor-only (delisted names drop out, so the true number is worse). Headline returns are the raw absolute stock move (what a short-seller experiences); the market-relative (abnormal vs SPY) figure is shown as a footnote. PRELIMINARY: survivor-biased (delisted names drop out, so true severity is understated), from a mostly-bull-market sample (which suppresses absolute short returns), and modest n. Descriptive, not predictive. Not investment advice.

The short playbook

When you short a flagged name, the only question that matters is whether it falls — and how often. So we measured exactly that: the naked-short cash return and the share of names that dropped, across every holding window out to two years, on confirmed disclosures. Going-concern doubt is the heavy hitter (the typical name cuts in half over a year), but even a material weakness drops on average — the further you hold, the more it accrues. We show what the S&P did alongside, but only as a footnote: a short is usually a bearish or hedging view, where beating a long-the-market position you'd never take isn't the point.

Confirmed Item-9A / going-concern disclosures (precision-detected, not boilerplate FTS), 2019–2025. The headline is what a short-seller actually experiences: the NAKED-SHORT cash return (−stock move; caps at +100% if the name goes to zero) and the hit rate (share of names that fell), median across names at a ~12-month reference hold. Absolute return keeps accruing the longer you hold, so the curve shows it growing. The S&P line is a footnote — only relevant if your alternative was being long the market; a short is often a bearish or hedging view where that comparison doesn't apply. Point-in-time market cap. Stop-loss = exit the first day the stock rises ≥ L vs entry.

• Bull-market sample: 2019–2025 was mostly a rising tape, which SUPPRESSES absolute short returns — these names fell despite a market tailwind, so in a flat or falling market the short returns would likely be larger.
• Survivor-biased: delisted names (often the biggest short wins) drop out of long windows, so the sample shifts as the window grows.
• Wide losing tail: when a short is wrong the rebound is severe and unbounded (the stock can multiply). Size for the tail.
• Borrow cost and margin over a multi-month hold are not modeled — on hard-to-borrow distressed names these are material.
• Descriptive base-rate research across many names — not a prediction about any single company. Not investment advice.

The tape

Investable names (≥ $5) that disclosed one of these flags recently, newest and most-severe first. NEW = first time on record (the clean→flagged transition — the highest-signal moment).

Window: last 90 days · generated 2026-09-24 · SEC EDGAR full-text search; forward returns vs SPY.

Across the whole cohort, here's what Analyst + Trader unlock —