Is it legal for an investment firm to announce some positions/trades that aren&#39;t true? Taking as example the 2021 GameStop short squeeze, is it legal for an investment firm to announce some positions/trades that aren't true? The question was triggered by this Tweet (mirror):
No Lying about a trade would be market manipulation.
You’ve presented a number of different scenarios, without a lot of specifics, so I’ll start from the top, and from a US perspective. A very generic term that would come up in this situation is material misstatement. one might say that an account or line item is overstated or understated, or a misstatement could arise from the omission of a necessary note, because notes are an integral part of the financial statements. Financial statements are said to be materially misstated if the misstatement would affect the choice of a typical decisionmaker. There’s no explicit standard for what is or isn’t material, but in practice, auditors often choose some small fraction of net income as the threshold. Materiality can also be caused by positive vs. negative earnings, or other thresholds, like financing agreements which might oblige the company to keep its current ratio above a certain level, for example. In the US, the rules to which the statements have to be materially correct are known as GAAP (Generally Accepted Accounting Principles) and they are codified in the Financial Accounting Standards Board's Accounting Standards Codification (FASB ASC). Depending on how the scheme is arranged, issues in the realm of “buying stuff as a “customer” to make the business look good” include: Substance over form: it may not be appropriate to recognize as a sale at all. If the net effect is a transfer of cash from the owner or manager to the business, while the goods find their way back into the company warehouse, that could be considered as paid-in-capital, or even a liability, rather than a sale. Owner bought some product to inject cash, and put the goods back in the inventory? That’s cash from the stockholder, not a customer sale. Somebody in management moved a truckload of product to his storage unit, only to return it after year end? That might be more accurately characterized as a loan, not a sale. I don’t know of any specific terms for this exclusively, but there have certainly been cases where companies moved inventory to undisclosed warehouses in an effort to hide fictitious sales from their independent auditors. Edit: Another term for certain sales without commercial substance is a “roundtrip transaction” or “roundtripping.” Disclosure notes: even if there is commercial substance to the transaction, it may require disclosure notes, such as those for related party transactions, as required by ASC 850. Transactions with related parties must be disclosed even if they are not given accounting recognition (ASC 850-05-5). Examples of related parties are given in ASC 850-05-3, including “an entity and its principal owners, management, or members of their immediate families,” among others. Under the relevant definition, a person does not need a formal title to be considered a member of management (ASC 850-10-20). The related party disclosure is not required in consolidated financial statements, for transactions that are eliminated in the consolidation process (ASC 850-10-50-1). For sales from a public company to a bona-fide external customer, there’s also the major customers disclosure, but the threshold for that is 10% of revenue, which is much more than enough to materially impact the bottom line. Generally, transactions between a parent company and a subsidiary will be eliminated in the preparation of the parent’s (consolidated) financial statements (ASC 810). This means if the parent company A sells goods with a carrying value of $30 to its subsidiary, B, at a price of $50, A doesn’t recognize that $20 gross profit until B sells the goods to an outside party. Internally, B might carry the goods at $50 on B’s books, but A would have to cancel it out so that only $30 of that appears on A’s consolidated balance sheet. The consolidation method is applied when one business has a controlling interest in another, and in summary it means that the parent company reports A+B’s financials as if it was all a single entity. That means B’s assets and liabilities, revenues and expenses, are all reported as part of A. It also means any transactions between B and A are transactions within the entity; you wouldn’t recognize a gain or loss (nor revenue and GP) if your marketing department sold office equipment to your engineering department, and you don’t get to with subsidiaries either. Consolidation requires not only eliminating revenues, cost of goods sold, and excess carrying value of inventories on intra-entity transactions; it's also gains and losses on things like equipment, meaning the same transaction could require a consolidation adjustment twenty years later to eliminate excess depreciation expense. Long story short, ASC 810 deals with consolidation, and those rules apply when you create or purchase a subsidiary to buy your stuff, or use a subsidiary to pass the same $200,000 back and forth. When the parent entity does not have a controlling interest in the investee (the basic threshold is 50% of voting shares, or by some other agreement) but does have significant influence (representation on the board or other factors in ASC 323-10-15-6), then it will be treated as an equity method investment. Instead of adding the line items together, it's a single asset and A's portion of B's earnings are a single line item on the income statement, but the adjustments are similar to those in a consolidation. Another kind of revenue recognition game which companies used to play involved bill-and-hold arrangements, wherein the customer (or the “customer,” or a salesperson without any real input from the supposed customer) would place an order, and the company would send (or at least, prepare and book) an invoice (revenue), but not ship the goods until the customer actually asked for them. These days, the rules on revenue recognition are fairly guarded against these kinds of things, but some other examples of “sales” that aren’t really sales include consignment arrangements, repurchase agreements (could be a sale with right of return, or depending on terms could be effectively a lease or a financing arrangement), and the gross vs net revenue issue for principle/agent situations (airline and hotel booking sites are a popular example. If they’re an agent they’re required to report their commission on a net basis but would likely prefer to look bigger by calling it a $110 sale and $100 cost of goods sold, instead of just $10 revenue). If you’re interested in management schemes to mislead the users of financial statements, check out the SEC’s online archive of Accounting and Auditing Enforcement Releases (AAERs) here. Some of them just deal with individual professionals who should know better, but they can be pretty interesting, whether they involve poor ICFR, or intentional deception on the part of upper management (it's on management either way).
It means that you state the fact and represent that it is true If you make a material false representation in the formation of a contract and the other party enters the contract in reliance on that, then that contract is void. This would appear to be the case here. When a contract is void neither party can enforce their rights, nor are they required to perform their obligations under that contract. The practical effect for a cryptocurrency broker is they have your money and your crypto coin and you can’t sue to get either back.
To examine this further and answer your question, we need to look at Copyright (and fair use) as well as Defamation. Alas, I am unsure as to how taking legitimate headlines from around the world and attributing their source is 'fake news' - but I'll accept that it's 'fake news' for the purposes of exploring this topic. A lot of the potential (or motive) for a person or company to litigate against you will be context specific and detailed to how you have used their work and portray their journalists and characters - misquotes etc. As an exception to British copyright law, fair dealing is governed by Sections 29 and 30 of the Copyright, Designs and Patents Act 1988, which outlines three instance where fair dealing is a legitimate defence: If the use is for the purposes of research or private study; If it is used for the purposes of criticism, review or quotation; Where it is utilised for the purposes of reporting current events (this does not apply to photographs) However, where you may come into problems is: A statutory definition for fair dealing does not exist; it will always be a matter of fact, degree and interpretation in every fair use case. Nor is there a percentage or quantitative measure to determine fair dealing. The Intellectual Property Office lists the key factors used to determine the validity of whether a particular dealing with a work is fair as follows: Has the use of the work impacted negatively on the market for the original work? If the creator or owner has lost potential revenue through the re-use of their work, it is not likely to be fair. Was it reasonable and necessary to use the amount of work that was taken? Also: Fair use for parody, caricature or pastiche The UK copyright law on fair use of works for the purposes of creating a parody or pastiche is also listed in Section 30A, Schedule 2 (2A) of the Copyright, Designs and Patents Act 1988. References to all here. Guidance from the Intellectual Property Office (IPO) states that fair use needs to be “fair and proportionate” and does not protect an individual from any other rights an author may have. Those other rights may involve claiming defamation if this material creates fake news and uses the names of real journalists or companies etc - and if they allege that your AI fake news has caused serious harm in any way to their reputation - they could sue you for breach of the Defamation Act 2013. All of this is entirely contextual however as to how your AI might display or make fake news and how Google caches it and displays it - and if it could be portrayed as 'real' or believable for example. You are also doing this at a time where 'anti fake news' law is evolving... and even though you say it's fake news for AI experiment purposes - it's a growing field of concern for many. (see here) Copyright law is a vast and evolving area - and nothing is clear cut. It really depends if a major news company didn't like what you were doing and took exception to it and issued challenges on many areas of law based on that.
Insiders, such as a CEO, are allowed set up predetermined trading plans to avoid accusations of insider trading: Rule 10b5-1 is established by the Securities Exchange Commission (SEC) to allow insiders of publicly traded corporations to set up a trading plan for selling stocks they own. Rule 10b5-1 allows major holders to sell a predetermined number of shares at a predetermined time. Many corporate executives use 10b5-1 plans to avoid accusations of insider trading. See also: What constitutes illegal insider trading What is insider trading exactly?
An investor can require, as a condition of making an investment, that key management and creative employees of the company agree to a non-compete agreement. If such employes choose not to sign such an agreement, the investor will not invest. This is quite common. If Alice has signed such an agreement, she may not be able to start a new company with such new applications without permission from the existing company. She can surely write such applications for the existing company and get it to modify its business to use them. If Alice (still) owns a controlling share, she can simply order the company to modify or expand its business model. If she has sold enough of the company that she no longer controls it, she must persuade those who do control it to adopt her ideas. Any non-compete agreement must be limited, both in the range of activities it covers, and in the tiem for which it is valid. Some US states impose specific limit on these factors. An agreement tht exceeds such limits will not be enforceable. If Alice was employed by the company at the time she wrote any of these apps, the code may well be owned by the company, either under the work-made-for-hire copyright rule (see 17 USC 101) or under a specific contract of employment. Investors are likely to demand that such a contract be signed before they invest in a tech startup. Alice will also have a duty not to act contrary to the company's interests while employed by it. In the absence of non-compete agreements, Alice might not be prevented from founding or joining a competing company, but may not be able to use work done while employed by the first company for the benefit of a new one.
This is not "libel," which is a form of defamation (publishing a false and defamatory statement that injures another). "Bait and switch" is a type of violation of the Massachusetts Consumer Protection Law. That Law makes it illegal for a business to engage in any false or deceptive practices, or to perform any false or deceptive acts, in commerce. Read more about it on the Massachusetts' state government site. If the restaurant's conduct was deceptive and it caused you harm (for instance, you would not have gone into the restaurant and ordered at all if you had known you had to order a drink to get the favorable price on sliders,) there may be a violation.
Does B have a legal obligation to inform A that changes were made to the document? This is definitely not a simple yes-no question. One ought to consider not only the tenets of contract law, but also notions of equity and of public policy. On the one hand, courts acknowledge modified contracts that result from a battle of the forms. On the other hand, sliding changes in the contract without adequately directing the counterparty's attention to them tends to contravene the contract law covenant of good faith and fair dealing. In the scenario you outline, imagine the inefficiency and risk of mistake if the parties engage in several rounds of offers and counter-offers by sliding changes scattered all over the latest draft of a contract (this is totally feasible, especially as laws nowhere limit the number of times a party can make a counter-offer). Unless each party is conspicuous about his latest changes to the contract, the dynamics can easily become a matter of which party inadvertently binds himself to unacceptably detrimental clauses (some of which might re-occur after being stricken in a previous draft). This hinders the contract law prerequisite that a contract be entered knowingly and willfully. Although the parties are responsible for reading the contract, subjecting the offeror/offeree to devote valuable resources each time a newly altered contract goes from one direction to the other seems contrary to public policy. Furthermore, that defeats the purpose of negotiations and of the prior efforts each party spent toward the contract (such as valuations and risk analysis). I'm just curious to understand what legally prevents this type of things from happening in general. An offer may include language to the effect of accepting the contract 'as is'. See the provision in the Uniform Commercial Code (for instance, see MCL 440.2207(2)(a)) whereby alterations are precluded "[if] the offer expressly limits acceptance to the terms of the offer". The aforementioned statute also precludes terms which significantly alter the contract. See MCL 440.2207(2)(b). In a context of loan contracts --apropos of your example--, a borrower's unilateral alteration of the interest rate, of payment schedules, etc. constitute material alterations. Indeed, financial institutions are utmost sensitive to changes in interest rates and the timing of cash flows. Even in the case of an offeree's immaterial alterations of a contract, an offeror might prevail under principles of equity. This is more evident in the case of entities which enter and manage a multitude of contracts simultaneously, be it via contracts of adhesion or upon negotiations with each counterparty. In line with my point on public policy, the additional cost of filtering a counterparty's last minute occurrences would make it impossible for economies of scale to develop.