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Comment by lostinquebec | Hacker News Reader

I often wonder: wouldn't fines paid as a percentage of stock be a better deterrent? Taking stock off shareholders changes the fraud equation from risk of fine vs the profitability upside, to shareholder's losing real value.

That's the role of shareholders AFAICT, to hold their board and the company accountable. Fail to do so and lose your shareholding seems the right direct risk.

The fines could also be a lot larger, because there is minimal risk of bankrupting a business from diluting existing shareholders. A 1% shareholder hit would be $4B at current market cap. Make it 5% and really make shareholders pay.

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But there's a market where you can exchange the two, so they are roughly the same thing. If you have your 1% shares fined away, you can buy back the upside, if that's what you want. Or if you have a fine of 1% equivalent in cash, you can sell shares to pay for it.

Either way you've lost 1%, but you can decide whether to hold the upside exposure and voting control.

I think the key is the size of the fine. $1B to JPM is not really a whole lot. Maybe scaling the fine according to the size of the entity might make sense, but then there's a question of why everyone else at JPM is getting fined simply for doing their job in the same building as the guys who did this.

Edit. On second thought I guess you mean there will be a restriction on buying back the shares?

I think it's really important for people to understand that $1Bn isn't a lot of money to JPM because they do lots of things. They made $30Bn last year - but this specific trading business probably made nothing like that. They're doing consumer banking, investment banking, commercial banking, asset and wealth management. It might be true that $1Bn isn't a huge sum compared to the total profitability of JPM but I don't see why JPM's consumer banking arm has anything to do with the fine. Most likely these trading desks sum up to around 50-100 people at most. It's a very profitable sector (when you're breaking the law) but it's a tiny tiny part of what JPM do, and the idea that we should fine JPM more because they have lots of other businesses is just kind of crazy.

This would encourage the behavior because if there is less stock of the company held by anyone it increases the price .

Shareholders can change corporate behavior lik Carl Icahn but here it seems like it was very opaque to even monitor, the other way they can enforce good behavior is to sell the stock.

Shareholders can't be asked to police the company. That's not their job. They don't have the resources nor the expertise to do it.

Shareholders literally own the company. Not making them accountable for their companies actions is prob the worse incentive system ever.

No no, it's bad to ask questions of the management team, we call those "Activist investors"

https://en.m.wikipedia.org/wiki/Activist_shareholder

The sibling comments have an interesting worldview: can't fine management cause it's not their firm, can't fine shareholders cause it's not their fault, its nobody's fault.

Holders of common stock are not involved in the daily operations of the company. Not all ownership involves that level of liability. This is by design.

Apparently you didn't think very hard about that one. If you made the owner of a company criminally liable for any wrong-doing by the company's employees, nobody would risk owning a company. It would be impossible to have an advanced economy with these conditions.

I'm for the idea of no one wanting to own a company, who do I vote for?

I don’t think that’s what they said

So they can push for ever greater profits, but not bear any responsibility?

No, but if fines are the mechanism for punishment/restitution, they may as well be marked to market cap.

They don't need to police it, they need to give the board etc. the proper incentives to do business legally because they will be hurt financially if the business doesn't. The policing is still done by the government agencies.

All you need is a few activist hedge funds to do the policing. You can’t blanket say that shareholders lack resources.

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