Dirt Diggers No 4:
May 14, 2002

Editor: Philip Mattera

This digest contains the following items:

1. new query regarding subsidiary boards of directors

2. responses to old queries

3. new research resource on federal contractors

4. feature story on a for-profit corporate researcher



Marcia Carroll writes:

Fellow Dirt Diggers,

I'm trying to find out who sits on the board of directors of a

subsidiary of a big public company. I checked SEC filings and Sec. of

State in Delaware, where it is registered, but no luck. Calls to the

subsidiary and parent, are not returned. Anybody have any ideas?


Marcia Carroll

Multinationals Resource Center



There have been no responses so far to the queries posted in

Dirt Diggers No. 3. Charlie Cray had asked for suggestions
of "crude corporate indicators" such as toxic releases, campaign
contributions and the number of offshore tax haven subsidiaries.

The moderator suggests the following:

- percent of unionization of U.S. workforce (check the 10-K)

- number of serious/willful OSHA violations

- number of registered lobbyists

The floor is still open for other suggestions as well as for

responses to the query about whether anyone has done

a comparative analysis of the different public records

databases (Autotrack, Lexis-Nexis, KnowX etc.)



Dirt Diggers may be interested to hear that the Project on

Government Oversight <www.pogo.org> has launched the

Federal Contractor Misconduct Database. The database, an

offshoot of a report called Federal Contractor Misconduct,

contains information on violations of various laws by the 43

largest federal contractors.



Several Dirt Diggers sent in notes about the following

AP story about somone who does work like us but

makes a lot more money from it.

Copyright 2002 Associated Press

Associated Press Online

May 8, 2002 Wednesday



HEADLINE: Some Profit From Corporate Mistrust


BODY:  Americans' mistrust of corporate executives and
Wall Street analysts has made Howard Schilit a very rich man.

If it weren't for accounting nightmares like Cendant Corp., Rite Aid

Corp., and Waste Management Inc., Schilit wouldn't be able to charge upward

of $30,000 a year to investors who want to avoid the next accounting

disaster by subscribing to his research.

In exchange for that hefty fee, clients gain access to his Center for

Financial Research and Analysis reports flagging potential problem stocks,

produced by a team of 12 analysts working in shorts and T-shirts in a shabby

office outside of Washington, D.C.

"You'll probably never interview someone who has a more profitable

business than me," Schilit recently told a reporter visiting his dimly lit

office, littered with empty boxes and stacks of industry publications.

Once a tenured accounting professor at the American University,

50-year-old Schilit is one of the biggest success stories in the field of

independent stock research.

Unlike major Wall Street investment banks, which make their analysts'

reports publicly available, independent firms like Schilit's Center for

Financial Research and Analysis allow only paying customers - high-paying

customers - to view their research.

Since he began his business as a part-time effort from his home office in

late 1993, Schilit has built CFRA into an Internet-based subscription

service that claims 500 clients, with 90 new ones signed up in 2002 alone.

He estimates his profit margin on the research is about 90 percent.

Schilit's success certainly isn't reflected in his appearance. He still

looks like a rumpled professor, tieless and wearing worn boat shoes. CFRA's

drab headquarters are in a nondescript office building near a sea of strip

malls and discount furniture stores in Rockville, Md.

The ninth-floor office is always locked, but has no doorbell or intercom.

The receptionist one afternoon was a teen-age friend of Schilit's son, who

wore baggy shorts and a short-sleeved shirt and munched on takeout food. At

other times, it may be Schilit's wife, Diane, who favors jeans and sneakers.

Few people see the inside of CFRA or care how well-appointed it is.

Professional investors and wealthy individuals are willing to pay tens of

thousands of dollars for research from a firm that few average Americans

have heard about because they know that Schilit's analysis isn't compromised

by any other business relationships.

They also like the exclusivity that their knowledge gives them.

Journalists aren't allowed to subscribe, and in his many public appearances,

Schilit never discusses the individual stocks he is covering.

That's in direct contrast to Wall Street firms like Merrill Lynch & Co.

Inc., which is being investigated by New York State Attorney General Eliot

Spritzer for allegedly allowing its analysts' research to be tainted by

investment banking ties.

Merrill's ratings changes are duly reported by several publications, and

its analysts regularly appear on financial news programs.

"The fact that they are independent - they don't run money, they don't

get paid by issuers (with investment banking ties) - means that they provide

significantly more unbiased research than you'd find elsewhere," said John

Bogle Jr., president of Bogle Investment Management, a subscriber to CFRA's


Much of Schilit's success is due to his research methods. CFRA has

developed a screening system that runs through corporate earnings filings in

search of operational deficiencies or aggressive accounting.

Then, its analysts flip through the filing manually to root out any false

positives, and finally, interview the executives to make sure they aren't

misreading the documents. Some common red flags: Changing the length of

depreciation on assets, or too many related party transactions.

"What's different is we actually look for a problem. We start out with an

analyst mindset - we don't know if we love or hate a stock. It's a whole

different mindset" than that of Wall Street analysts, said Schilit.

CFRA questioned the accounting tactics being used by Cendant Corp., Rite

Aid, Sunbeam Corp. and Waste Management months before those stocks blew up.

Schilit can't claim a similar timeliness on Enron Corp., the Houston

oil-trading firm that collapsed last year.

 In 1995, CFRA wrote a piece that exmined the company's profits, warning

that most of was coming from investment activity, not its operations. CFRA

didn't revisit Enron again before the company imploded last fall, much to

Schilit's chagrin.

"We can't take credit for saying we wrote a warning" on Enron recently,

he said.

Although the product attracts raves from subscribers, it doesn't hurt

that Schilit is a self-promotion machine.

He spends much of his time touring the United States, speaking before

private gatherings of professional investors, such as hedge fund

associations. His 1993 how-to analysis book, "Financial Shenanigans," was

recently released in its second edition.

It's a major change from his life nine years ago, when Schilit began CFRA

in his home office as a part-time project.

Philip Mattera