[tomxor]

Given this type of scenario, it feels like the opposite should happen: Investors should be blocked from recovering losses and victims should be compensated.

That's a far better preventative measure.. to incentivise investors to be responsible in what they invest in rather than "just letting shit happen" and reclaiming money if necessary because it's easier. If harm comes to people due to their investment, they only get whatever is left over after victims are compensated.

[nemothekid]

>Investors should be blocked from recovering losses and victims should be compensated.

I think Levine's take is a bit more nuanced. It's not like shareholders are taking up the case for some altruistic reasons, it's just that for lawyers it's an easier case to litigate. To paraphrase Matt, if you had to sue the CEO, on behalf of victims, for sexual harassment, as a lawyer you would have to prove the damages by showing that maybe the CEO had a pattern, that the victim was actually traumatized and not just "regretting it" and any other of mountain of historically charged counter claims of sexual harassment. But securities fraud, all the lawyer has to do is point to a newspaper article about how the news came out and the stock went down.

In other words, investors being blocked from being compensated wouldn't solve the issue - it would just remove a possible disincentive for actors to act improperly.

[dmix]

Yeah this isn’t some textbook or ideological economics “what’s better for everyone” scenario where we can just push a button to choose the better one. It’s far more complicated.

It’s just a product of better lawyering but also critically access to information, not some easily controllable incentives system where regulators or some sort of centralized agency can effectively tip the balance back towards some abstract group of victims, in only a subset of cases (which cases do they help with? Proactively looking for ones they deem need the victims help the most? Etc it’s a hard solution to build and probably an unrealistic one).

The other option of arbitrarily downplaying investors power in the courts in general sounds like it could be full of unexpected downsides and false positives IRL. Consumer class action suits are already seedy and full of unfair ‘captain retrospect’ sort of policing and the lawyer groups again also make most of the money anyway (and often are the biggest motivator and resource backer too). Which at the end of the day doesn’t make the ‘bad’ companies operate any better in a realistic world.

The courts may be flawed but they tend to be way better than almost anything else available.

Any new ‘system’ or balancing act would have to deal with counter balancing certain parties having better motivation/resources/positioning/information. Which historically in other systems has been even more ripe for abuse by power holders who end up being pushed and prodded by the same groups with above said advantages.

A far better solution IMO is more and better organizations advocating for victims groups in such cases. An adaptation to the reality of the courts and the markets, rather than a rejection of them.

Otherwise we’re just pointing the overlaid lawyers in a new direction and nothing in the consumer world actually gets better through the process.

[JumpCrisscross]

> it feels like the opposite should happen: Investors should be blocked from recovering losses and victims should be compensated

This kneecaps the investor-lawsuit mechanism by removing the incentive to discover and pursue problems.

Do we have precedent for employee lawsuits citing shareholder litigation to burnish their case?