Is Everything Securities Fraud?

"There's a real gap in our understanding of capitalism and crime if it's easier tom compensate shareholders of a toxic company than it is to compensate the direct victims of that toxic behaviour."

Fortunately, the Strauss paper^1 on which this Levine newsletter entry is based does not suggest it is easier. Where did this idea come from. Instead, the author found that non-SEC regulators and primary victims generally received greater recoveries than investors and their securities fraud class-action plaintiffs lawyers, where the class-action lawyers were piggybacking on investigations by non-SEC regulators and litigation by primary, non-shareholder victims. (That is only based on available data; some primary victim settlements might be private.)

In this piggyback litigation the author reviewed, the vast majority of cases resulted were successful for both the primary victims (non-shareholders) and the securities fraud shareholder plaintiffs. In other words, the non-shareholder victims are getting compensated, and they are getting larger payouts than shareholders in piggyback securities fraud class-actions.

There is no suggestion anywhere in the paper that it is easier to be compensated in securities fraud class-actions than in actions brought by non-SEC regulators or non-shareholder victims of the corporation's conduct. In general, class-action securities fraud complaints have a very low probability of surviving a motion to dismiss. Rather, the paper suggests class-action securities fraud plaintiff's lawyers can increase their odds by piggybacking on non-SEC investigations and litigation by non-shareholders who are victim's of the corporation's conduct. That is not surprising.

1. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3664132

New title: Is Everything Also Securities Fraud?

> It turns out starving kids in Africa are of no value to anyone

Listen to yourself. This isn't normal, but on markets, it is.

> The "moral notion of value" is a nonsensical concept

No, it's the fundamental concept. Economic value should aspire to approximate it if we want the market to be a force for collective good. To the extent that economic value fails to approximate moral value, the economy fails to serve our collective interests.

In CS terms: greedy algorithms fail hard in predictable ways.

> [So why don't you give more through GiveWell?]

Because I'm stuck in a system that's designed to punish me for doing so above and beyond the intrinsic cost of providing for the kid. Here's a counter-proposal: I'd absolutely sign up for a wealth-proportional share of a tax for ending world hunger. I'm not poor, even by HN standards, so this isn't cheating, but the fact that this formulation of the solution wasn't obvious to you demonstrates how thoroughly you've been trained to see the world through the circus-house lens of wealth-weighted utility, and just how perversely that lens distorts the world.

Yeah this isn’t some textbook or ideological economics “what’s better for everyone” scenario where we can just push a button to choose the better one. It’s far more complicated.

It’s just a product of better lawyering but also critically access to information, not some easily controllable incentives system where regulators or some sort of centralized agency can effectively tip the balance back towards some abstract group of victims, in only a subset of cases (which cases do they help with? Proactively looking for ones they deem need the victims help the most? Etc it’s a hard solution to build and probably an unrealistic one).

The other option of arbitrarily downplaying investors power in the courts in general sounds like it could be full of unexpected downsides and false positives IRL. Consumer class action suits are already seedy and full of unfair ‘captain retrospect’ sort of policing and the lawyer groups again also make most of the money anyway (and often are the biggest motivator and resource backer too). Which at the end of the day doesn’t make the ‘bad’ companies operate any better in a realistic world.

The courts may be flawed but they tend to be way better than almost anything else available.

Any new ‘system’ or balancing act would have to deal with counter balancing certain parties having better motivation/resources/positioning/information. Which historically in other systems has been even more ripe for abuse by power holders who end up being pushed and prodded by the same groups with above said advantages.

A far better solution IMO is more and better organizations advocating for victims groups in such cases. An adaptation to the reality of the courts and the markets, rather than a rejection of them.

Otherwise we’re just pointing the overlaid lawyers in a new direction and nothing in the consumer world actually gets better through the process.

> Very gracious of you to be willing to help but only if all of society signs up to do it with you.

Or in other words: being willing to help if it will make a significant difference.

Negotiated collective action is a good tool.

Ah, since $1000 will save a life, and you believe that giving $1000 will not make a significant difference, then one must logically conclude that it is untrue that saving a life is making a significant difference. From there, it does not take very much to conclude that human lives are not significant to you either.