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Is Everything Securities Fraud?

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Re: Is Everything Securities Fraud?

#11

Post by notional »

titanomachy wrote: post #7
hervature wrote: post #2

This is probably showing up because it showed up in Matt Levine’s newsletter which returned today. In the newsletter, Matt disagrees with one of the conclusions drawn in the paper that shareholders have a perverse incentive to invest in companies that do bad things because they are compensated their loses when the stock goes down. He disagrees because their are compensated with money that the company has which alread…

That... is a good point. Actually, suing a company for securities fraud seems kind of strange when you put it that way. How could a shareholder derive net benefit from suing a company for a share of the assets they already own? Unless they've already sold the shares and they're suing to try and recover their loss? Is that allowed?

Do you still have to be a share holder when you sue?

Or can it play out like, I own xx shares in Y Corp. Y Corp does something bad and share price goes down, I sell my stake and sue Y Corp for securities fraud for making my shares go down during the time period I owned them?

Re: Is Everything Securities Fraud?

#12

Post by vorpalhex »

tynpeddler wrote: post #9
mwnivek wrote: post #3

Earlier quoted context omitted.

Link to Levine's piece: https://www.bloomberg.com/opinion/articles/2021-01-05/dystop...

A securities fraud lawsuit against a company because the work environment is toxic reminds me of the movie Unforgiven. For those unaware, the movie starts with a cowboy disfiguring a prostitute with a knife because she laughed at him. After the incident, the guy who manages the brothel is financially compensated since he had invested money in bringing the prostitute to his place of business, money which he will presu…

How much is the harm, in dollars, of securities fraud?

Well the equation would be the expected profit based on the average share price over the given time period. We can argue details but that gives us a pretty tight range.

How much is the harm, in dollars, of being grossly disfigured?

There is definitely harm there. Is it the loss of earnings of the prostitute assuming she would make less money? That's some of it - the amount is at least that much. Yet presumably she also has less quality of life too - and how much is that worth? Is the basis for the quality of life of a prostitute less or more than a CEO? What if the prostitute really enjoys life and has a rewarding life, but the CEO is very drab and dislikes living?

That it's hard to put monetary figures on a harm isn't some failure in our understanding - it's because we comprehend money is not a universal salve. You can fix a business with cash, you can't fix a human life with it.

Re: Is Everything Securities Fraud?

#13

Post by nickff »

ashtonkem wrote: post #5
hervature wrote: post #2

This is probably showing up because it showed up in Matt Levine’s newsletter which returned today. In the newsletter, Matt disagrees with one of the conclusions drawn in the paper that shareholders have a perverse incentive to invest in companies that do bad things because they are compensated their loses when the stock goes down. He disagrees because their are compensated with money that the company has which alread…

This also probably disincentives companies from misbehaving, as being sued by their shareholders is expensive and bad.

Companies don't act, investors, board members, executives, and employees do; these decisions would only disincentivize executives if they hold un-exercised options, or their shares are somehow excluded from the judgement.

Re: Is Everything Securities Fraud?

#14

Post by nickff »

notional wrote: post #11
titanomachy wrote: post #7

Earlier quoted context omitted.

That... is a good point. Actually, suing a company for securities fraud seems kind of strange when you put it that way. How could a shareholder derive net benefit from suing a company for a share of the assets they already own? Unless they've already sold the shares and they're suing to try and recover their loss? Is that allowed?

Do you still have to be a share holder when you sue? Or can it play out like, I own xx shares in Y Corp. Y Corp does something bad and share price goes down, I sell my stake and sue Y Corp for securities fraud for making my shares go down during the time period I owned them?

IANAL, but I think you've right that you don't need to hold on to the shares, and you've pointed out the only groups of investors who would benefit from the judgement. The most benefited would be those who were harmed but sold their shares before the lawsuit was announced; shareholders who sold their shares before the matter was decided are likely to benefit to a lesser degree.

In reality, class-action lawyers go looking for class members to file suit on behalf of, and make special arrangements for them to receive additional compensation above and beyond what 'regular' class members get.

Re: Is Everything Securities Fraud?

#15

Post by jandrese »

tynpeddler wrote: post #9
mwnivek wrote: post #3

Earlier quoted context omitted.

Link to Levine's piece: https://www.bloomberg.com/opinion/articles/2021-01-05/dystop...

A securities fraud lawsuit against a company because the work environment is toxic reminds me of the movie Unforgiven. For those unaware, the movie starts with a cowboy disfiguring a prostitute with a knife because she laughed at him. After the incident, the guy who manages the brothel is financially compensated since he had invested money in bringing the prostitute to his place of business, money which he will presu…

Economists like to talk about "utility" and the common good with their theories, but they tend to only measure money so unless you can put a price tag on it it is invisible to economists. The wellbeing of a prostitute is one of those things that has no market. The same is largely true of toxic workplace behavior. There is a tertiary effect from potential lawsuits, but those are almost impossible to price into a business model.

If your bro culture allows you to succeed over your competitors at the cost of a million dollar lawsuit a decade down the road then it probably doesn't make economic sense to change the culture. Wall Street banks and trading houses were (are) notoriously hostile workplaces, but if your profit margins are in the billions and you're getting good returns then a million dollar suit in the future is basically not a concern.

Re: Is Everything Securities Fraud?

#17

Post by eastbayjake »

hervature wrote: post #2

This is probably showing up because it showed up in Matt Levine’s newsletter which returned today. In the newsletter, Matt disagrees with one of the conclusions drawn in the paper that shareholders have a perverse incentive to invest in companies that do bad things because they are compensated their loses when the stock goes down. He disagrees because their are compensated with money that the company has which alread…

So glad Matt Levine is back! I missed the newsletter a lot

Re: Is Everything Securities Fraud?

#18

Post by nickff »

jandrese wrote: post #15
tynpeddler wrote: post #9

Earlier quoted context omitted.

A securities fraud lawsuit against a company because the work environment is toxic reminds me of the movie Unforgiven. For those unaware, the movie starts with a cowboy disfiguring a prostitute with a knife because she laughed at him. After the incident, the guy who manages the brothel is financially compensated since he had invested money in bringing the prostitute to his place of business, money which he will presu…

Economists like to talk about "utility" and the common good with their theories, but they tend to only measure money so unless you can put a price tag on it it is invisible to economists. The wellbeing of a prostitute is one of those things that has no market. The same is largely true of toxic workplace behavior. There is a tertiary effect from potential lawsuits, but those are almost impossible to price into a busin…

Well there are (at least) two issues you're glossing over here:

1) Toxic workplace behavior is measurable, you can simply measure the wage premium paid by the so-called "toxic" employers or managers.

2) Bro culture may contribute to business success. I don't like that kind of 'culture', but it may help foster improved productivity in certain industries, and the lawsuits may just be a cost of doing business that's worth paying. Again, this isn't how I live my life, but it is conceivable that this is a workable model.

Re: Is Everything Securities Fraud?

#19

Post by titanomachy »

greenshackle2 wrote: post #10
titanomachy wrote: post #7

Earlier quoted context omitted.

That... is a good point. Actually, suing a company for securities fraud seems kind of strange when you put it that way. How could a shareholder derive net benefit from suing a company for a share of the assets they already own? Unless they've already sold the shares and they're suing to try and recover their loss? Is that allowed?

If only a subset of shareholders are suing, e.g. shareholders who bought shares between date X and date Y, they are only losing a fraction of a dollar in share value for every dollar they win in the lawsuit. They are gaining at the expense of shareholders who are not part of the lawsuit. (Ignoring court fees.. the suing shareholder is paying court fees on both ends, could end up being net negative.)

Wouldn't anyone who held shares during that time have standing for the lawsuit, regardless of when they bought them?

Re: Is Everything Securities Fraud?

#20

Post by dcolkitt »

jandrese wrote: post #15
tynpeddler wrote: post #9

Earlier quoted context omitted.

A securities fraud lawsuit against a company because the work environment is toxic reminds me of the movie Unforgiven. For those unaware, the movie starts with a cowboy disfiguring a prostitute with a knife because she laughed at him. After the incident, the guy who manages the brothel is financially compensated since he had invested money in bringing the prostitute to his place of business, money which he will presu…

Economists like to talk about "utility" and the common good with their theories, but they tend to only measure money so unless you can put a price tag on it it is invisible to economists. The wellbeing of a prostitute is one of those things that has no market. The same is largely true of toxic workplace behavior. There is a tertiary effect from potential lawsuits, but those are almost impossible to price into a busin…

> The wellbeing of a prostitute is one of those things that has no market.

Sure it can. Everyday institutions make calculations that assign a standard monetary value to a human life.[1] And it's not just the market, the government and policymakers do it all the time as well.[2]

Heck, you even put a value on your own life. Do you drive the latest car model and live in a house that was built in the last two years? If not, you're trading off money against mortality, by increasing your risk of dying in a car accident or house fire.

[1] https://en.wikipedia.org/wiki/Value_of_life [2] https://www.bloomberg.com/graphics/2017-value-of-life/

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