Opinion: The SEC wants to spy on your portfolio
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(I tend to disagree with most other compromises.)
I want integrity in investments, I know there are bad actors in finance, and I want them found and smacked down. I see no downside to the SEC knowing exactly what regulated investments I have.
I also see no downside to anyone else having the SEC know exactly what regulated investments they have, unless they are involved in some kind of investment fraud or scam, tax evasion, hiding/laundering illegal income, etc. (Yeah, I realize I'm saying "if you have nothing to hide...", which is usually a red flag for a bad idea, but in this case, we're only talking about regulated investments, nothing more, AFAICT.)
Am I missing something?
Those are usually where privacy invasion becomes dirty games.
Now suppose the CEO of the company golfs with a SEC commissioner. Or there's some other relationship, a less direct one. No matter how strong the ethical rules of the SEC are, they can't ban every potential relation between a commissioner/employee and someone from a public corporation.
Suddenly the fraudulent company would know precisely what it needs to do (in terms of manipulating it's own stock price) to force me to close my position.
For example, let's say someone pushes an incorrect exposé, moving the market. When it's found to be incorrect, what are appropriate mechanisms for determining who all was involved (including verbal tips to golfing buddies), and whatever corrective action?
If the expose contains no lies but is nevertheless incorrect, investors and speculators are supposed to figure things out on their own. (How often they succeed is another matter.) Sometimes they can get the help of someone like Carl Icahn who'd tweet about a "short squeeze of the century" after getting a big long position. If the expose contains lies, the SEC and the Southern district of New York are supposed to prosecute.
The problem is, that even if the expose is completely correct, a fraudulent company can manipulate it's share price for quite a while until the music stops. The short seller will try to get the music to stop early, whereas the fraudulent CEO will try to continue his fraud as long as possible (thus screwing more and more people as time goes by). If he can get the short seller to a margin call, his fraudulent company will survive for longer.
And with the information that the SEC has, any CEO would be able to force margin calls in short sellers whenever they wish.
Is the core difficulty here that people don't trust government enough to handle the fraud problem? Or is it more appeal of profiting from the private policing of fraud? (Both are understandable.)
On the trust angle, would it be possible for the government to earn sufficient trust? Or is there some fundamental reason people with government jobs couldn't conduct the same research these private parties are?
There's the recent case I mentioned in another thread of the CFTC and the election-betting market websites predict.it and Kashi. Kashi (A VC rich funded startup) hired former a CFTC commissioner and suddenly the regulatory approvals of predict.it (a project by a university in New Zealand) were withdrawn.
(It's a bit more complicated than that, but I'd rather not go into all the details. You can research it on your own. Perhaps you'd reach a different conclusion than me. Maybe the CFTC was behaving properly and the internet consensus is just paranoid.)
Could regulatory agencies be reformed to be beyond suspicion? Probably. How? Don't ask me, I'm not a politician, I can't pretend to know how.
I'm guessing you don't work in the equity markets as this sentence doesn't make alot of sense.
What specific mechanism are you refer to that would force someone to close a position?
I mean, right now every single order that is sent to an exchange is stamped with the owner of the order and has been tagged like this since around 2001.
Each brokerage is required not only by law, but also as there is no other way to know who to send shares bough to and whose account to debit.
If you are worried about the SEC chairman, then why is there no concern about the CEO of IB or Ameritrade who can already do this?
Like all systems, this will be audited so if the commissioner of the SEC does decide to look at your order that will be recorded and they will have to explain why the commissioner is doing something that they are not allowed to do.
For half the ZIRP era it was so easy to get shorts margin called (as it was done by people who had no business shorting), that shorts accidentally did it to themselves with by misusing options. Obviously overvalued companies were among the best investments imaginable (Beyond Meat, Kodak, Gamestop, etc.)
As for the risk of brokers doing it, yes it's also real. But if you suspect foul play from your broker, you could move to a different brokerage. If you mistrust the exchange you trade trough a dark pool if you want to. Can you change your regulator?
Companies can do that right now without any of this data, the CAT consolidation does absolutely nothing to change this.
So again, help me understand the concern you have about this new change.
But it's a lot easier to do if you can figure out at what price would the short get margin called, when are his options are going to expire, etc.
What would normally require aggressive manipulation (like Musk's lies about a Tesla buyout offer), can become trivial, perhaps even undetectable.
From 2015: https://www.sec.gov/news/statement/remarks-21st-internationa...
"our staff also developed a tool called ARTEMIS, which stands for the Advanced Relational Trading Enforcement Metrics Investigation System. This initiative analyzes suspicious trading patterns and relationships among multiple traders and uses the Division’s electronic database of over 6 billion electronic equities and options trading records."
Is it insane? The implications are insane. But it's a fact: the government cannot demand anything material from you whatsoever without a warrant signed by a judge specifying what law you broke and why they suspect you broke it, with tangible reasons to suspect it. They can't force themselves into your life. Mandatory reporting requirements require you to divulge private information about yourself, your life, your property and possessions, under threat of civil or criminal penalty, without a warrant specifying exactly what they expect to find and what law the information proves that you violated. It's unlawful.
Yes.
> But it’s a fact: the government cannot demand anything material from you whatsoever without a warrant signed by a judge specifying what law you broke and why they suspect you broke it, with tangible reasons to suspect it.
False.
First: the fourth amendment applies to searches and seizures, not demands. Demands for the kinds of things for which searches and seizure would be protected by the Fourth Amendment are instead covered by the due process clauses of the 5th (for the federal government) and 14th (for state governments) Amendments.
Second: the fourth amendment prohibits unreasonable searches and seizures, and limits the conditions in which warrants, where necessary, can be issued; it doesn’t explicitly require warrants at all, though the Supreme Court has read into it a presumptive warrant requirement for reasonableness, but has also found several situations where reasonableness doesn’t require a warrant.
Third: A requirement to specify “what law you broke and why they suspect you broke it” applies only to arrest warrants. The requirement for search warrants is for what evidence they expect to be found and on what basis they expect the evidence to be found there.
> Mandatory reporting requirements require you to divulge private information about yourself, your life, your property and possessions, under threat of civil or criminal penalty,
Mandatory reporting requirements are conditions of participation in some activity that is both within Congress’ constitutional regulatory authority and over which it has exercised that authority to impose the requirement. You can choose not to participate in the activity to avoid the requirement.
Civil and criminal penalties are the consequence for making the mandatory disclosure, but doing so incorrectly, or for participating in the regulated activity without making the required disclosure.
I'd say, if my premise is correct that it is a search, then demanding information without any tangible evidence of a crime is unreasonable. So whether it is reasonable or not is not a fruitful topic of discussion. The only thing that matters here is if reporting requirements qualify as a search. I think I've made a pretty compelling case that they do.
By your logic, a cop could go get a warrant to search under your sheets for teddy bears. There must be tangible reason to believe a law was broken. You're not getting a warrant to search or probable cause to search on the grounds that someone is in possession of something lawful.
Participation in commerce with ones neighbor is not activity under the purview of the federal government under the constitution. Only participating in commerce with someone in another state or country is under their purview, and even then, that only gives them the power to regulate the activity within the confines of the constitution. Mandatory reporting is not regulation of commercial activity.
Requiring disclosure of private information under threat of civil or criminal penalty is a violation of the 4th. And 5th if that information is incriminating. You can declare "false" all you want, demanding private information is indistinguishable from a search.
“Search” and “Seizure” are, and mandatory disclosures are neither.
> suppose the government created a reporting requirement that required you to divulge all your conversations with your mother yearly by April 20th. Would that be an unlawful search?
No, it would not be a search at all. It would be unconstitutional for the simple reason that it serves no function Congress is affirmatively empowered to do, but its not a search. If asking for iinformation under penalty was equivalent to a search, subpoenas (which are not warrants) would be Fourth Amendment violations, and every subpoena would have to instead be replaced with a warrant.
> "Demand" for material details about your possessions and how you conduct your life is indistinguishable from a search.
A search isn't a demand, a search is when the government accesses your property and looks for the things it want, not when it asks you to provide them. A search is what the government gets a warrant to do if they have evidence you aren’t complying with a legal demand for information or things (, the subpoena for Trump to turn over documents followed by the execution of a search and seizure warrant to look for and take them when the government had evidence that the former was not complied with.) They are very different things.
> By your logic, a cop could go get a warrant to search under your sheets for teddy bears.
They could, if there was probable cause to believe that (1) there were teddy bears there, and (2) the teddy bears there were evidence of some crime. Perhaps more to the point, though, the conditions under which the government could get a subpoena or other non-warrant order for me to turn over or disclose the existence of any teddy bears I have, though, would be much different—and not controlled by the 4th Amendment—than those for which they could get a search warrant.
> You're not getting a warrant to search or probable cause to search on the grounds that someone is in possession of something lawful.
Yes, you can: things can be in themselves lawful to possess, but also be evidence of a crime.
> Participation in commerce with ones neighbor is not activity under the purview of the federal government under the constitution.
Arguing that the Securities Exchange Act, or other laws supported by mandatory reporting requirements, are invalid in purpose outside of the reporting requirements and therefore that the reporting requirements have 10th Amendment issues is a different thing than arguing that the 4th Amendment prohibits mandatory reporting even if the underlying purpose of the law it supported was otherwise within Congress’ Constitutional authority.
> Mandatory reporting is not regulation of commercial activity.
A reporting requirement tied to a particular commercial activity is regulation of that activity. It may not be regulation that you prefer, but its definitely regulation of it.
> Requiring disclosure of private information under threat of civil or criminal penalty is a violation of the 4th.
No, it neither a search nor a seizure, so even if it is not reasonable (which, again, doesn't alaways require a warrant for actual searches), its not a violation of the 4th.
Access to IDs should definitely be improved as well.
Some people may like that, but I reflexively disagree with any tool that gives even more of my private information to a government or private entity. Including and especially my finances.
Google, Facebook, ISPs, etc. are probably already giving it to them.
Ok, now make a useful argument.
(my portfolio was previously reported for compliance purposes to my financial services employer, and trades required pre-approval and ongoing portfolio monitoring)
Instead, I'd rather prefer that corporations and governments would be forced to act in the open.
The need to disclose spousal information may dissuade some (maybe many) from public service, but that doesn't necessarily seem like a bad thing.
It's a matter of incentives in the end, I prefer adjusting these over complicated bullshit regarding "insider" trading rules that's constantly gamed anyway because it has no real teeth attached.
If you want to see my baskets of index funds, have at it.
And yes, there's recent precedent of federal market regulators abusing their power to help corporate friends. Feel free to look up the predict.it/Kashi situation, if you have any doubt.
The amount of damage that can be done by a breach of a large trove of sensitive data is quite impressive.
It is none of their business, that's why. [0]
Standard link: 'I've Got Nothing to Hide' and Other Misunderstandings of Privacy by Daniel J. Solove
1. go to archive.ph
2. enter the url you want to archive (in either box, it will do the right thing)
3. if it hasn't been archived, it will do so, otherwise it will present you with the different versions of the page that have already been archived
4. post link on hn
I'd rather have that money stay within the states so they can choose how to use it. As a bonus, if federal income tax was eliminated, people would have more money in their pockets and taxes could be exercised locally/statewide, vs administered in DC, by out of touch advisors.