free speech and finance

[mr friendly guy]

This is just something that I would like to provoke a discussion on. Free speech fundamentalists argue that we shouldn't have laws against freedom of speech if you insult someone, even if it fits the criteria of provoking hate. If someone makes fun of Mohammud, he isn't going to complain as the argument goes. And even if he did, it would still be ok.

People have also argued against say criminalising fake news (something which Germany is considering when it applies to social media), arguing that we should let good ideas clash with bad ones in the marketplace of ideas.

But it occurs to me we already have laws against free speech in regards to finance. Take securities fraud.
https://en.wikipedia.org/wiki/Securities_fraud

According to enforcement officials of the Securities and Exchange Commission, criminals engage in pump-and-dump schemes, in which false and/or fraudulent information is disseminated in chat rooms, forums, internet boards and via email (spamming), with the purpose of causing a dramatic price increase in thinly traded stocks or stocks of shell companies (the "pump").

If someone disseminates blatantly fake information about a stock, isn't that within his / her "freedom of speech." Say if Scam Artist 1 spreads a rumour than mining stock XYZ's gold mine turns out to have a much smaller reserve than previously thought and it causes a fall in the value of the stock. Isn't the usual argument for free speech ie let the marketplace of ideas weed out the bad ones applicable here?

How is Donald Drumf making false allegations against a company different from Donald Trump making false allegations against Mexicans. I mean, after all, its not like a company is a person and able to complain about its feelings being hurt.

*************************************************************************
The same argument also applies to encouraging people to make a run on a particular bank. Isn't it a person's free speech to say that? And in which case we let the opposing side argue why we shouldn't make a run on the bank rather than criminalising the person advocating the bank run?

This strikes me as a double standard, where companies are treated better than actual humans. It seems to me you either
a. Accept that it should be the same principle and allow bullshit claims about a company and accept the consequences that people are stupid and it can affect the financial markets

b. Or accept that the same reason we limit free speech in regards to finance, ie to prevent certain consequences can also apply when we do it against people.

Thoughts.

[Grumman]

You took your quote out of context; ignoring the very next sentence is why you are wrong:

When the price reaches a certain level, criminals immediately sell off their holdings of those stocks (the "dump"), realizing substantial profits before the stock price falls back to its usual low level.

It's not the speech alone that makes securities fraud securities fraud, it is the use of speech to manipulate the price of something you are buying and selling. Buying and selling people is considered slavery, and has been illegal for a hundred and fifty years. The closest you could get is for an employer to deliberately ruin your good name to make you desperate enough to take their shitty offer, and that would result in the employer having the book thrown at them if you took them to court.

[Simon_Jester]

The thing is, slander and libel ARE actionable if you can prove that you've been harmed in a concrete way. Friendlyguy is mistaken about this; he's saying that this thing should be illegal, but it already is.

Fake news is simply a new means of committing libel and spreading it quickly and cheaply. It was always illegal

[mr friendly guy]

You took your quote out of context; ignoring the very next sentence is why you are wrong:

When the price reaches a certain level, criminals immediately sell off their holdings of those stocks (the "dump"), realizing substantial profits before the stock price falls back to its usual low level.

It's not the speech alone that makes securities fraud securities fraud, it is the use of speech to manipulate the price of something you are buying and selling. Buying and selling people is considered slavery, and has been illegal for a hundred and fifty years. The closest you could get is for an employer to deliberately ruin your good name to make you desperate enough to take their shitty offer, and that would result in the employer having the book thrown at them if you took them to court.

I thought someone might try this line of argument so I have 2 replies.

1. what happens if I spread a rumour because I hate a particular company, and I don't myself directly benefit from it since I don't buy stock. It still causes adverse consequences for that company if I am believed. Is it not illegal?

2. what happens if I spread a rumour about a person and then benefit from that. For example if I was a demagogue politician and I am campaigning at the moment. It is benefiting from a false claim just like security fraud. Both are lying, both are benefiting from that lie. But it seems only if I directly benefit via using financial instruments am I not allowed to say it.

And for good measure, what happens if a financial expert encourages people to make a run on the bank? Lets say I don't benefit directly other than to bolster my reputation as a financial guru. I am going to hazard a guess that the illegality of doing this remains, just based on what was said during the financial crisis thread, back in the day.

The thing is, slander and libel ARE actionable if you can prove that you've been harmed in a concrete way. Friendlyguy is mistaken about this; he's saying that this thing should be illegal, but it already is.

Fake news is simply a new means of committing libel and spreading it quickly and cheaply. It was always illegal

Actually Germany's plan to punish social media which carries fake news is still being debated, so its not illegal yet. However people are criticising this German idea as limiting free speech and we should let the marketplace of ideas compete blah blah blah, the usual stuff. I am just arguing limiting free speech in regards to finance stuff is already in place, yet these free speech advocates are either blissfully unaware of this or don't care.

[Tribble]

1. what happens if I spread a rumour because I hate a particular company, and I don't myself directly benefit from it since I don't buy stock. It still causes adverse consequences for that company if I am believed. Is it not illegal?

That usually is illegal, it's called defamation and that can be either verbal (slander) or other media (libel).


General points on defamation:

The accusation is false
The accusation is made out as a fact rather than an opinion
It impeaches the subject's character
It is published to a third person
It damages the reputation of the subject;
The accusation is done intentionally or with willful blindness and disregard of facts

What constitutes defamation can vary widely between jurisdictions / cases of course. And generally speaking, the more well known the subject in question is, the higher the threshold that is required to constitute defamation.

2. what happens if I spread a rumour about a person and then benefit from that. For example if I was a demagogue politician and I am campaigning at the moment. It is benefiting from a false claim just like security fraud. Both are lying, both are benefiting from that lie. But it seems only if I directly benefit via using financial instruments am I not allowed to say it.

As you may have noticed, politicians / political candidates have a very high threshold with regards to defamation. They make blatantly false claims and accusations towards each other all the time (and for that matter, so does the public towards them). And they certainly benefit from it. It's very rare for a politician to be outright charged for something stupid they've said, so on the whole I would say it's generally not illegal. If they benefit directly from a financial standpoint and its proven that may be a different story, though from what I know that's still very rare. Politicians write the laws afterall, and it should come as no surprise that the laws are largely written in the favour.

[LaCroix]

Actually Germany's plan to punish social media which carries fake news is still being debated, so its not illegal yet. However people are criticising this German idea as limiting free speech and we should let the marketplace of ideas compete blah blah blah, the usual stuff. I am just arguing limiting free speech in regards to finance stuff is already in place, yet these free speech advocates are either blissfully unaware of this or don't care.

No. German libel laws already cover this to an extent, so it already is illegal. The new laws will just make it easier to determine if the fake news are illegal or not, by creating a framework how to interpret the (from the standpoint of the libel laws) new technologies and their impact. It's basically just an update on a slightly out-of-date set of laws. (As Germany does not have case law with precedent creating new law, they have to do it "manually".)

[mr friendly guy]

As you may have noticed, politicians / political candidates have a very high threshold with regards to defamation. They make blatantly false claims and accusations towards each other all the time (and for that matter, so does the public towards them). And they certainly benefit from it. It's very rare for a politician to be outright charged for something stupid they've said, so on the whole I would say it's generally not illegal. If they benefit directly from a financial standpoint and its proven that may be a different story, though from what I know that's still very rare. Politicians write the laws afterall, and it should come as no surprise that the laws are largely written in the favour.

I wonder if this is because in financial crimes its easier to show. For example making a fake rumour and then benefiting from securities can be inferred by looking at stock holdings and stock price before and after the rumour. Becoming a leader through demagoguery is easy to see how they benefit, but harder to show as the benefits from being a politician are harder to quantify, unlike money.

[Elheru Aran]

To make a very simplistic example:

Suppose there are two lemonade stands on a street. They price their product the same, so they break fairly even. But Stand A wants an edge, so the proprietor begins spreading a rumor that Stand B makes their lemonade with urine (considering the typical age demographic that frequent lemonade stands, that's about the average level of rumor for them). Thus customers abandon Stand B post-haste for Stand A, and Stand B goes under.

Financial fraud laws essentially try to prevent such a scenario; if a company goes under, it should be for legitimate reasons, not mere rumor or word of mouth based upon false pretenses.