Summary: a third party in the US provides synthetic Toshiba shares (without Toshiba's consent or input).
But the buyers have sued Toshiba using the US court system!
"Toshiba Corp. is a Japanese company whose stock is listed in Japan. It has unsponsored Level 1 ADRs in the U.S., through no fault of its own. [Toshiba] did a fraud. U.S. investors lost money on their ADRs and sued, and Toshiba objected that it had nothing to do with those ADRs, or with U.S. securities markets in general. Last year a U.S. federal appeals court let the lawsuit go forward".
I also love this quote from Matt "If you are a member of the global insider-trading Illuminati, please tell me about it over unencrypted email."
"Synthetic" shares seems like a bit of a misnomer, these are actual shares of Toshiba stock bought overseas and then held by a US entity that sells receipts on them.
This seems to be a cautionary tale for anyone thinking of buying such things, since theoretically you are just screwed if something like foreign accounting fraud tanks the value. But since this is the US and you can file a lawsuit against anything under the sun, these investors tried, and apparently succeeded in bringing a suit against a Japanese company for Japanese crimes in US court.
The Chinese version of this is super sketchy and I am surprised it has lasted this long. Chinese companies are under no obligation to follow our securities and accounting laws. I am sure they are doing all kinds of illegal things such as not setting the shares aside in China and lying about their accounting. A big mess.
So, is this film available in China itself? That would tell us interesting stuff.
If it is on Netflix, not officially, but I mean, is it something you can get hold of a pirated version of without attracting the attention of censors.
Only if the US company chooses to provide goods and services to customers in the EU and collects their personal data.
The case in point is like a US web company only providing services to US customers, but some Europeans who VPN'd into the US web site and pretended to be Americans sued it under the GDPR anyway. In this case the proxy company holding the Toyota shares takes the role of the VPN.
I guess the question is, if you feel a company lies about something (just for the sake of argument let's assume that is true) and it hits the stock price, even if you don't own the stock directly... is that still fraud and do you have legal standing to sue?
The question is rather: Why should a foreign company have to care about whether it is fraud in your jurisdiction? I can see that you possibly can sue whoever is offering the ADR in your jurisdiction, and that they can possibly sue the company in their home jurisdiction, but not like this.
No, most countries will not allow their courts to assert original jurisdiction for torts or crimes committed in other countries by foreign actors. The US has more exceptions to this then most other countries, for instance the controversial https://en.wikipedia.org/wiki/Alien_Tort_Statute
But even the Alien Tort Claims Act only applies to torts, and only to those which are "...committed in violation of the law of nations or a treaty of the United States."
Other countries have a mixture of ideology and consequences which limit the scope of their jurisdiction.
The ideology itself formed mostly from historical consequences and collaboration with neighbors.
The consequences being their relationship with other countries. Specifically related to negative consequences that have an impact.
The US ideology has no limit to its scope, and the consequences are non-existent. When other countries disagree with US ideology, their desire to maintain a relationship with the US is greater. This allows the US to so far operate with impunity, with notable exceptions being Russia and China, which do ignore administrative requests from the US for things within their territory.
This should give a lot of color and context to why the US has a different meaning of jurisdiction than what people expect.
A future US could be subject to unilateral drone strikes and internationally coordinated sanctions, forcing more mutual cooperation and limitations in its enforcement scope.
I think it has less to do with drone strikes and more to do if if you want to do business in a given place and they have courts who take action, you're more attentive to the law there.
Nobody is worried about China drone strikes, but they'll hand over IP or whatever is needed.
I would be interested in a financial product that provides just enough ownership in every public company that allows my corporate entity enough standing to seek damages from any of them. A legal liability exposure index if you will.
I can than profit off of being an activist investor with much more leverage utilizing much less capital.
In general damages are proportional to the harm you've suffered. If you only own a tiny amount of the company then you still spend a lot on a lawsuit but only suffered very low levels of economic harm.
If this is what you want, though, you could just buy a share of each public company. (An index fund wouldn't work, I don't think, you actually need to own the stock.)
In that case, how about a derivative that is a bit like a credit default swap, but it's a sort of legal compliance swap? If a company follows the law, the issuer pays you a modest coupon, but if the company breaks the law, you have to pay the issuer a large indemnity.
You might even find ready counterparties amongst firms that do business with the company in question, or law firms who take them on on a retainer basis.
I unironically quite like this idea. Now, who do i know at an investment bank?
AIUI most countries, but not USA, award costs as the default position?
If that's true then in such countries you may only win an award of a few Euros but the cost to the losing party could be millions (your and their legal fees). If the company cave and accept liability, or whatever, then they're probably going to have to pay out to all shareholders (or customers); which might be even more cost.
So, even a small ownership can be leveraged.
If my understanding is correct then the unique USA system flips things putting the corporations in the power seat as legal costs for a case are usually much less of a proportion of their cash reserves/profits/available credit. Not awarding costs removes the multiplier making litigation too costly for all but the very richest in society.
that's only the first part of the piece. Then it goes on to show how everyone forgot how to do business and instead blindly trust random indexes, from exchange rates to chicken price (and one can easily extrapolate to BTC, which is oscillating on $9-15k every 15min for the past 5 hours btw --exchange wash trade scam news in 3, 2, 1...)
Matt Levine does a great job writing, and I highly recommend his newsletter. He talks extensively about the weird things that happen in the finance and hedge fund world, such as Windstream botching a bond and getting called out on it years later by a hedge fund. Or dozens of examples of things where you'd think "that's gotta be insider trading" but is completely legal.
He's hilarious. I don't know how he puts out such high quality content so often, nearly every weekday. There's always something weird or interesting to talk about, and he does a great job of breaking down the complexities in a way that's fun to read.
Don't want to detract---I am a subscriber to the newsletter and find it very interesting and entertaining---but one of the cornerstones of his productivity seems to be that he is quite repetitive. He usually singles out events of a particular type (mostly crypto shenanigans, securities fraud complexities, regulatory corner cases, insider trading, disputes about advanced financial instruments and a couple other areas) and then writes about them repeatedly.
Its somewhat telling that there are enough instances of such events (crypto shenanigans, securities fraud complexities, regulatory corner cases, insider trading and disputes about advanced financial instruments) for those to be repeatedly written about in an entertaining fashion.
I think some of the entertainment value comes from the quite obvious repetitiveness. For instance, in the closing section of yesterdays newsletter, he had this sentence:
> Crypto Traders Also Enjoy Investing In Tesla, Claims Redundant Study.
Which manages to state a fact and deliver a joke in just 10 words, because of the unspoken implications.
It’s sensible that he would cover topics on which he has professional insight, and this is what Bloomberg pays him to write about. Do you think he is more repetitive than other financial columnists?
Yeah, his repetitiveness is a little like the repeat of the theme song / video before a lot of tv shows like x-files that I don’t always skip over... it doesn’t take away much and I don’t know how else the intro could be done any better.
In my own personal experience, people are most often mistaken about what is insider trading due to a combination of a vague sense of unfairness and a lack of background knowledge about the reasons for insider trading laws and the exact harm those laws are designed to prevent.
Matt Levine has written extensively about this and it's all quite interesting!
Stock buybacks used to be illegal, until they weren't. Very relevant in the current market. Not insider trading as such, but a form of manipulation that one might consider related.
Thanks for the pointer! It seems... symmetrical(?) that if corporations can sell stock, they should be able to buy it back. It's not a whole lot different from a dividend in practice, it's just cash flowing from the corporation to the owners of the corporation. The commentary on that article about not investing back into the company isn't particularly convincing, to me anyway, just because there are lots of times that its better for anyone but the company to have the cash, especially if the company can't think of anything better to do with it than buy back their own stock. And it's not like the money disappears in a puff of smoke, presumably the shareholders reinvest the proceeds.
I'm sure my analysis is naive and missing something, but on first glance, this doesn't strike as a problem anywhere near as bad as insider trading.
Nope, you're absolutely right. The main difference between stock buybacks and dividends are the tax implications – and what they signal to the market.
Dividends tend to be "sticky" since changing them all the time gives investors little certainty over what they should expect to receive (and if there's anything investors like is certainty)
Buybacks signal management (a) has no better source for capital and (b) probably thinks the stock is currently undervalued (i.e. it's a good time to buy back cheap shares).
Companies very often do not have projects to invest with a return higher than their cost of capital, and any reasonable CFO who finds themselves on that position should pay back its equity holders who risked their money by investing in this company with a given expectation on returns
Many things were illegal until they weren't, but we don't go around suggesting there's a nefarious reason behind their legality.
The really honest argument is that buybacks are taxed in a special manner, and this difference between taxes on income and taxes on capital gains is what's really driving income inequality in the U.S.
There have been some rather weird price moves in some stocks relating to various congressional committees apparently tipping off people before the info was publicly released.
While I can't find it right now I recall studies that showed that the typical return on a Senator's investments was at least 11% greater than would be expected which is a data point to take into consideration.
I do agree it is all very interesting and will read more of his works when I have time.
I don't think that's a very accurate description of the situation. There's no specific law against insider trading. Insider trading restrictions arose out of case law rather than legislation. Enforcement of the law changes as judicial interpretations changes, but judges don't get lobbied. The strictest that insider trading law has ever been was 2009-2013.
Prior to 2009 insider trading cases were generally clear cut situations like an accountant telling a trader about an upcoming merger in exchange for a bribe. Then Preet Bharara started pursing insider trading cases very aggressively, punishing people for being downstream of insider information, even when they didn't know the original source, and no one was bribed.
Starting in 2014 judges started pushing back on this broad interpretation of insider trading rules. Recently a 2013 guilty plea for insider trading was vacated because the behavior he admitted to is no longer considered against the law. Again, this isn't because of lobbying, but because judges have decided that the correct view of insider trading is the one that existed prior to 2009, not the broader one that Preet Bahrara pushed for. Even the laxer standard for insider trading that judges have returned to make the US stricter than most countries in enforcing insider trading.
Politicians aren't considered insiders in the traditional view of insider trading. Trading on Congressional information, which you alluded to, was legal until 2012, when it was banned not coincidentally while insider trading law was expanding in other ways.
Insider trading tends to be done by individuals or small groups of friends. I doubt that any of them would consider it beneficial to individually pay for lobbyists.
Life hack: don't store anything you don't want to explain in front of a judge.
For practical purposes, "store" includes "put in a computer".
Consider that:
--Saying you committed a crime is definitely incriminating, so storing that is probably not in your best interest.
--You are not qualified to know that you are _not_ breaking the law.
--In fact, the only way to determine this affirmatively is by trial.
--If you think no one important cares, you might still piss off someone important later (Corollary: pissing off someone important is a good way to find out whether you have broken the law).
I would encourage readers to see Moxie Marlinspike's essay on this subject. The thesis is that the ability to capriciously and selective prosecute anyone is stiffing to dissent, and prevents political change. Students of recent US history understand that this is far from purely theoretical.
"if everyone’s every action were being monitored, and everyone technically violates some obscure law at some time, then punishment becomes purely selective. Those in power will essentially have what they need to punish anyone they’d like, whenever they choose, as if there were no rules at all.
Even ignoring this obvious potential for new abuse, it’s also substantially closer to that dystopian reality of a world where law enforcement is 100% effective, eliminating the possibility to [directly] experience alternative ideas that might better suit us."
Edit: To be clear, I think you make good point that privacy laws won't save you from a subpoena. However, they are probably useful for other reasons; this was why warrants and other notions of due process were created to begin with, including the requirement that a warrant or subpoena be limited in scope to that material which is relevant to a particular charge or investigation. I think one big problem today is that people are ordered to surrender "everything on your phone and cloud", etc. This is at least equivalent to search warrant for "your filing cabinet", if not "everything you have ever written or said."
This is very interesting. We surrender, for example, to the posibility of preventing the suffering of people by the acts of others becouse that, would make us dystopian.
Respectfully, did you read the article? The thesis is that dragnet surveillance is stifling to political change and may result in an ossified society. There are trade-offs other then security vs safety.
But privacy laws can prevent things from being stored, and thus reducing their ability to be gathered by subpoenas etc, particularly some n years later.
There are quite a few lines one has to cross before subpoenas and similar that don't exist with a cloud provider, employer, ex-wife, contractor, hacker, etc.
In this case it's about financial communications in the workplace that are required to be recorded for compliance.
Amazingly enough, there are more than zero traders who are sufficiently arrogant bozos that they will chat, on these recorded channels, about coordinating to break the law, stating on the recorded channel that they know they are breaking the law.
But "strong privacy laws" don't prevent these documents from being created. It's idiots saving hard evidence of the crime, and no amount of legislation can teach people to be better criminals.
- assume that anything you write about an individual in an electronic message will at some point be read by that individual and phrase it accordindly
It has served me well - I can't count the number of times I've seen a message forwarded unexpectedly (or been able to scroll down a long email chain to see some juicy stuff).
In the unrelated later article about the "Chicken Libor" later in the document, he says:
> Anyway it totally worked? “Georgia agriculture officials suspended the index late that year after some poultry companies declined to provide documents attesting to the accuracy of the data they submitted.” One possible reading is that companies were willing to lie about chicken prices, but they weren’t willing to lie about whether they were lying about chicken prices. 4 I suppose you could try that with real Libor too.
He missed the point. These guys were willing cause the company to lie. But, as the certifications presumably came from the individuals making them, were unwilling to be personally liable for the statements' accuracy. It's the same principle that underpins executive liability under SarBox.
[Edit: Huge fan nonetheless. Incredible volume of high level content comes from this guy.]
I loved that article. You might be right about the personal liability aspect but maybe there is something else at play too? Perhaps the amount of cognitive dissonance increases beyond some bearable threshold when asked to specifically confirm the lie (basically lie twice).
Similar to how when you ask a child "Are you sure it wasn't you who broke the vase?" They made the additional denial, surely once that step has been taken, the hard work is done.. but you can practically see the additional psychological pressure!
That depends on how the certification worked. If it was an internal compliance officer or someone that had to sign off, then you're right. But it also sounds like it might just have been that Company X has to hand over some documents, in which case no specific individual is accountable for certifying accuracy.
"You know the basic idea. A company does something bad, or something bad happens to it. Its stock price goes down, because of the bad thing. Shareholders sue: Doing the bad thing and not immediately telling shareholders about it, the shareholders say, is securities fraud."
Immediately telling them would still make the stock price plummet and you'll still lose probably the same amount of money. I think what most people want is: Tell me and only me first when there is something bad, so I can sell before the stock goes south.
And then shareholders sue their own company, and for every dollar of the settlement that they take out of their own pockets to give to themselves, they give 20 cents to a lawyer.
It seems to me theres some kind of balance between ignoring crimes that aren't committed inside your borders, and prosecuting crimes regardless of where they are committed. It seems to be a generally good thing to punish a company for employing slaves on their African plantation. Less good to be suing a European bar for selling to 'underage' 18 year olds.
If you start prosecuting everything and trampling over the laws of other nations, aren't they then going to start trampling back. Internet companies are largely US companies, how are they going to be able to function if they have to follow mutually exclusive laws. Eg if promotion of homosexuality is illegal in X, and free speech is protected in Y and both nations enforce their laws globally, what do you do?
You defer to the most powerful. Right now you bow down to the United States. If the United States doesn't care about your case, you bow down to China. And if they don't care, you bow down to Russia.
If they don't care, best of luck to you... you're on your own.
I have strong feelings about spoofing - that it should not, in almost every case, be illegal. While it is true that the spoofer may eventually cancel their orders the fact remains: their orders were dealable by any other party for a set period of time. You want to teach a spoofer a lesson? Deal on their price for size.
That anyone would base a trading or investment decision on the size of the bid or offer at any moment of time is frankly, crazy. Algos are constantly changing(edit) price and never dealing. Brokers allow orders to be only partially display, balances kept in 'reserve'.
There are many, many ways people attempt to "manipulate" by not showing their hand just as their are ways that show a hand (or many hands).
You're downvoted, but on my mediocre desi internet LTE connection, for the ~2 seconds it took for the article blurb to load I did wonder whether it was about the UK telco or a literal statement of everything everywhere being securities fraud.
This probably isn't the greatest case to lament that everything is securities fraud.
It seems fairly likely that Toshiba committed securities fraud and that if they did, that Americans making transactions in the US were detrimentlly affected.
It's certainly an interesting legal question. It would be nice for a perpetrator if they could use an international jurisdictional legal loophole to limit liability for their fraud.
But in terms of actual justice, it would be bad.
In general, you shouldn't have to directly control the mechanism by which your fraud causes damage to be held liable for the fraud.
It's time we just made all kinds of securities fraud legal behaviour. It is pretty much impossible to police as-is, leading to the more shady people gaining an advantage. It doesn't hurt real people, and if it's legal, everyone has an equal opportunity to do it.
Hmmm, the way to be convicted of this crime is not to commit it and be caught, because that shit ain't gonna happen. The way to be convicted is to make a permanent record claiming you've committed the crime, and then have the misfortune that a federal prosecutor discovers that record. What tiny percentage of these crimes are ever prosecuted? Wouldn't we expect prosecutors' discretion to be the only thing that could matter? Do we really need such arbitrary and thus unjust laws?
If I may add a substantive counterpoint, this newsletter's use of ValleySpeak to talk about occasionally complex technical topics (as well as moving to SoCal, and also reading other more focused things like: https://web.stanford.edu/~zwicky/aave-is-not-se-with-mistake...) taught me that my youthful naive (and possibly unknowingly racially-tinged) ideas about language and communication were far off -- specifically that anything apart from the Correct English (TM) mode of communicating was inferior and a sign of poor education or intellect. This is important, because if we unjustly filter people by their dialect then we may be making significant Type-I errors.
I'm a huge fan of Matt Levine, but i'm an even bigger fan of Geoffrey K. Pullum! Here's his proof of the undecidability of the halting problem, in verse:
But the buyers have sued Toshiba using the US court system!
"Toshiba Corp. is a Japanese company whose stock is listed in Japan. It has unsponsored Level 1 ADRs in the U.S., through no fault of its own. [Toshiba] did a fraud. U.S. investors lost money on their ADRs and sued, and Toshiba objected that it had nothing to do with those ADRs, or with U.S. securities markets in general. Last year a U.S. federal appeals court let the lawsuit go forward".
I also love this quote from Matt "If you are a member of the global insider-trading Illuminati, please tell me about it over unencrypted email."