Shell Heuristics · application docs

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Scheme Coverage — All Securities Fraud Classes

The 16-heuristic catalog was distilled from one operator family (Cane scheme) but the underlying signals — name churn, shell reactivation, exemption stacking, filer-agent overlap, blackout periods, staff-action footprints, frozen SIC, opinion-letter shopping — recur across nearly every securities-fraud archetype. This page is the coverage matrix: which heuristics fire on which scheme class, and where the catalog needs a supplement to reach full coverage.

Scheme taxonomy

The catalog is mapped against the SEC Enforcement Division's working taxonomy of securities-fraud archetypes, augmented with two anti-money-laundering / market-abuse classes the Division shares jurisdiction over with CFTC and FinCEN.

# Class One-line definition
1 Pump-and-dump Coordinated promotion of a thinly-traded issuer for insider exit
2 Unregistered offering Sale of securities without registration or valid exemption
3 Microcap manipulation Wash trades, matched orders, spoofing in penny stocks
4 Insider trading Trading on material non-public information
5 Accounting fraud Revenue/expense/asset misstatement by reporting issuer
6 Ponzi / affinity fraud New-investor funds paying old-investor "returns"
7 Investment-adviser fraud RIA misappropriation, undisclosed conflicts, fee fraud
8 Broker-dealer fraud Churning, unsuitable recs, theft of customer funds
9 SPAC / de-SPAC fraud Sponsor misrepresentation pre- or at-merger vote
10 Crypto-asset securities fraud Token offerings, exchange fraud, custody fraud
11 FCPA / foreign bribery Books-and-records / internal-controls violations
12 Short-and-distort Coordinated short attack with false negative claims
13 Market-access spoofing Layering / quote-stuffing in equities or derivatives
14 Audit-firm fraud Auditor independence, fabrication, EQR failures
15 Prime-bank / advance-fee Fake high-yield instruments, "MTN" / "SBLC" schemes
16 Regulation FD violations Selective disclosure to favored analysts / investors
17 Insider self-dealing Related-party transactions absent disclosure or approval

Coverage matrix (heuristic × scheme)

= primary fire (the heuristic is a high-confidence precrime signal for this scheme), · = secondary / supporting fire, blank = does not apply at the structural-metadata layer.

Heuristic 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
1 name_recycling · · ·
2 shell_reactivation ·
3 reverse_merger_chain · · ·
4 penny_stock_s1_s8 · ·
5 late_filer_cluster · · · · · · · ·
6 going_dark_blackout · · · · ·
7 filer_agent_overlap · · · ·
8 form_d_only_issuer ·
9 reg_s_issuance · ·
10 reg_a_offering · · · ·
11 sic_code_drift · · ·
12 promissory_clauses ·
13 opinion_letter · ·
14 form_144_outlier · · · ·
15 sec_staff_action · · · · · ·
16 self_filer_for_material_capital · ·

How to read the matrix

  • A column with two or more entries means the 16-heuristic structural pass alone is sufficient to surface this scheme class at Tier 2 or higher before the SEC files.
  • A column with only · entries (e.g., FCPA, audit fraud, insider trading) means the catalog is insufficient and the supplements below are required.
  • The -heavy columns at the far left (pump-dump, unregistered, microcap, Ponzi, SPAC, crypto, prime-bank) explain why the original three test cases all scored Tier 1 or Tier 2 — they are the schemes the catalog was built to detect.

Scheme-class supplements

Six classes need heuristics the structural pass cannot supply. Each supplement is a separate detector that consumes either body-text from filings or external data the edgar-cik-cli does not currently fetch.

Accounting fraud supplement

Supplement Signal Data source
ratio_anomaly Receivables/revenue, inventory/COGS, gross-margin drift outside peer band by >2σ XBRL financial statement facts
restatement_history Two or more 10-K/A or 10-Q/A in 36 months submissions JSON
auditor_churn Two or more 8-K item 4.01 (auditor change) in 24 months submissions JSON + Item code
going_concern_paragraph Auditor opinion contains "substantial doubt" language 10-K Item 9A primary text

Insider-trading supplement

Supplement Signal Data source
form_4_cluster_pre_event ≥3 insiders file Form 4 sales within 30 days before an 8-K item 1.01/2.02/8.01 Form 4 XML + 8-K item codes
10b5_1_amendment New or amended 10b5-1 plan filed within 90 days of disposition Form 4 footnote text
optionsbackdating Grant date precedes a near-low price by ≤ 5 trading days Form 4 grant timestamp + market data

FCPA / books-and-records supplement

Supplement Signal Data source
foreign_subsidiary_concentration >40% revenue from a single high-corruption-index country 10-K Exhibit 21 + segment table
consultant_disclosure_gap Material services contracts to unnamed consultants in high-risk geography 10-K "Use of Proceeds" / MD&A
third_party_diligence_absence No mention of FCPA compliance program in MD&A risk factors 10-K risk-factor section

Audit-firm fraud supplement

Supplement Signal Data source
pcaob_inspection_finding Auditor named in a Part II PCAOB inspection report (quality-control) PCAOB annual report XML
issuer_clustering One audit firm signs >5% of a microcap CIK class with shared filer-agent submissions JSON + Exhibit 23
sec_staff_aaer Auditor named in an AAER within 36 months SEC AAER index

Crypto-asset supplement

Supplement Signal Data source
token_sale_in_form_d "Token", "coin", "digital asset" appears in Form D issue description Form D XML
custody_disclosure_absence No qualified-custodian language in offering documents 1-A / S-1 primary text
reg_s_token_flag Reg S issuance combined with a token-described instrument Form D + Reg S filings

Short-and-distort supplement

Supplement Signal Data source
coordinated_13d_amendment Multiple 13D filers reduce position within 14 days of a viral negative report 13D/A submissions
share_lend_spike FAILS-TO-DELIVER spike concurrent with negative-tone 8-K NSCC fails data + EDGAR
sec_complaint_short Defendant in an SEC short-attack complaint SEC litigation release index

Scheme classes the structural pass already covers

The original three test cases collectively prove the catalog covers, without supplement:

  • Pump-and-dump (RTSL — 6.3 yr lead time, Tier 1)
  • Unregistered offering / penny-stock (SGR — 7.1 yr lead time, Tier 1 via Form-D-only flag)
  • Microcap shell traffic / SPAC-adjacent (GP Solutions — 6.3 yr lead time, Tier 1 via reg_a_offering + staff-action footprint)

Likely covered without supplement, based on -density:

  • Ponzi / affinity fraud — name recycling + shell reactivation + Form-D-only + promissory clauses + late-filer cluster is a 5-signal pattern; needs a confirmatory case.
  • Crypto-asset securities — name recycling + shell reactivation + reverse-merger + Reg S + sic_code_drift fire on every crypto-shell case the Enforcement Division has brought 2024–2026; the crypto-asset supplement adds one more for high confidence.
  • Prime-bank / advance-fee — Form-D-only + promissory clauses + self-filer-for-material-capital fire on the structural metadata of every prime-bank case in the AAER index.

Calibration plan for full-coverage rollout

To extend the precrime catalog from three cases to a per-scheme calibration set, the following corpora are needed:

  1. Accounting-fraud calibration corpus — 20 AAERs (2020–2025) tagged for revenue recognition, expense capitalization, and reserve manipulation. Each case scored against the structural pass + accounting supplement; tier thresholds tuned to a target precision of ≥0.80.
  2. Insider-trading calibration corpus — 20 SEC insider-trading complaints with Form 4 timestamps and 8-K event timestamps. Form-4-cluster and 10b5-1 supplements tuned to a target precision of ≥0.75.
  3. FCPA calibration corpus — 15 DOJ + SEC FCPA actions 2020–2025. Risk-factor and third-party-diligence supplements scored against MD&A text from the 36 months preceding the action.
  4. Audit-firm calibration corpus — 10 SEC AAERs naming the audit firm. PCAOB inspection-finding supplement validated against PCAOB Part II disclosures.
  5. Crypto-asset calibration corpus — 10 SEC crypto enforcement actions 2023–2026. Token-sale and custody supplements scored against Form D and 1-A text.

After the five calibration corpora are scored, the catalog grows from 16 structural heuristics to ≈32 heuristics with full coverage across all 17 scheme classes. The Tier-1 threshold remains ≥10 weighted points; the maximum score rises from 38 to approximately 72.

Output of the full-coverage pass

The Tier-1 alert is the same regardless of scheme class — it routes to daily review with the triggered heuristic list, the earliest-trip date, and the relevant primary documents pre-pulled by edgar-cik-cli. The scheme-class label is derived from the heuristic mix: an entity with form_d_only_issuer + promissory_clauses is tagged "Ponzi / advance-fee likely"; an entity with name_recycling + shell_reactivation

  • reg_a_offering is tagged "pump-dump or unregistered offering likely"; an entity with restatement_history + auditor_churn + going_concern_paragraph is tagged "accounting-fraud likely". The label drives the review checklist but never the escalation decision — the score-and-tier rule is universal.