University of Illinois law profesor Larry Ribstein writes that there are advantages to the concept of having billionaire Mark Cuban invest in the stocks that business journalists will write about on the investigative journalism web site ShareSleuth.com that he is funding.
Ribstein wrote, “There is a particular advantage in combining short-selling with journalism. The seller’s or his boss’s investment in the journal and its reputation in a sense ‘bonds’ the accuracy of the disclosure. A short-selling journalist’s short-term profits from lies may be more than offset by the long-term hit to his reputation.
“So instead of thinking about regulating this sort of trading, we should consider de-regulating it. We could start with a law clarifying that those who trade on information about fraud are not liable. The law might, for example, clarify that an employee who sells information about fraud to one who trades on the information is not misappropriating the information for purposes of the insider trading laws.
“Once we’ve cleared up what to do about Cuban’s idea, there are analogous situations that may deserve similar attention. For example, there have been stories recently about trading on advance knowledge of lawsuits, also known as ‘dumping and suing’ debated here. There are other stories about dumping and boycotting, where a prospective boycotter shorts the shares of the company he plans to boycott.”
Read more here.