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Comment by robocat | Hacker News Reader

Summary: a third party in the US provides synthetic Toshiba shares (without Toshiba's consent or input).

But the buyers have sued Toshiba using the US court system!

"Toshiba Corp. is a Japanese company whose stock is listed in Japan. It has unsponsored Level 1 ADRs in the U.S., through no fault of its own. [Toshiba] did a fraud. U.S. investors lost money on their ADRs and sued, and Toshiba objected that it had nothing to do with those ADRs, or with U.S. securities markets in general. Last year a U.S. federal appeals court let the lawsuit go forward".

I also love this quote from Matt "If you are a member of the global insider-trading Illuminati, please tell me about it over unencrypted email."

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"Synthetic" shares seems like a bit of a misnomer, these are actual shares of Toshiba stock bought overseas and then held by a US entity that sells receipts on them.

This seems to be a cautionary tale for anyone thinking of buying such things, since theoretically you are just screwed if something like foreign accounting fraud tanks the value. But since this is the US and you can file a lawsuit against anything under the sun, these investors tried, and apparently succeeded in bringing a suit against a Japanese company for Japanese crimes in US court.

The Chinese version of this is super sketchy and I am surprised it has lasted this long. Chinese companies are under no obligation to follow our securities and accounting laws. I am sure they are doing all kinds of illegal things such as not setting the shares aside in China and lying about their accounting. A big mess.

Here is a documentary about it on Netflix. Though not vouching in for the quality as a film, it tells how these frauds were structured

https://www.netflix.com/title/80221646

What's the title? If you aren't logged in to Netflix, that link just shows an error.

Accessing from the US, I get an error as well.

This Netflix link seems to work though: https://dvd.netflix.com/Movie/The-China-Hustle/80221646

Or on Rotten Tomatoes: https://www.rottentomatoes.com/m/the_china_hustle

Seems like it's not available in the US: https://netflixable.com/uk/en-US/movie/the-china-hustle-2017

China Hustle

I'm not logged into Netflix and I see no error

So, is this film available in China itself? That would tell us interesting stuff. If it is on Netflix, not officially, but I mean, is it something you can get hold of a pirated version of without attracting the attention of censors.

404 error when visiting page https://imgur.com/a/nttO8EP

Thank for sharing it! Looks interesting!

Presumably US law applies because a US company / citizen can buy Japanese shares.

So if I live in Russia and but a US company's shares, I can sue the US company under Russian law? Or the same for China? Or Saudi Arabia? Cool!

If you live in Europe you can sue a US company because you visited their website.

GDPR

Only if the US company chooses to provide goods and services to customers in the EU and collects their personal data.

The case in point is like a US web company only providing services to US customers, but some Europeans who VPN'd into the US web site and pretended to be Americans sued it under the GDPR anyway. In this case the proxy company holding the Toyota shares takes the role of the VPN.

> Only if the US company chooses to provide goods and services to customers in the EU and collects their personal data.

That’s what I said. Visit their website.

Companies chose to respond to HTTP get requests from Europe, they don’t have control over who buys their shares.

Similarly, if I only sell food outside the US I am not beholden to US food labeling laws even when someone imports my product into the US.

I guess the question is, if you feel a company lies about something (just for the sake of argument let's assume that is true) and it hits the stock price, even if you don't own the stock directly... is that still fraud and do you have legal standing to sue?

The question is rather: Why should a foreign company have to care about whether it is fraud in your jurisdiction? I can see that you possibly can sue whoever is offering the ADR in your jurisdiction, and that they can possibly sue the company in their home jurisdiction, but not like this.

Hasn't the question of if a foreign company can be sued in another country largely been answered in most countries as, yes?

No, most countries will not allow their courts to assert original jurisdiction for torts or crimes committed in other countries by foreign actors. The US has more exceptions to this then most other countries, for instance the controversial https://en.wikipedia.org/wiki/Alien_Tort_Statute

But even the Alien Tort Claims Act only applies to torts, and only to those which are "...committed in violation of the law of nations or a treaty of the United States."

Other countries have a mixture of ideology and consequences which limit the scope of their jurisdiction.

The ideology itself formed mostly from historical consequences and collaboration with neighbors.

The consequences being their relationship with other countries. Specifically related to negative consequences that have an impact.

The US ideology has no limit to its scope, and the consequences are non-existent. When other countries disagree with US ideology, their desire to maintain a relationship with the US is greater. This allows the US to so far operate with impunity, with notable exceptions being Russia and China, which do ignore administrative requests from the US for things within their territory.

This should give a lot of color and context to why the US has a different meaning of jurisdiction than what people expect.

A future US could be subject to unilateral drone strikes and internationally coordinated sanctions, forcing more mutual cooperation and limitations in its enforcement scope.

I think it has less to do with drone strikes and more to do if if you want to do business in a given place and they have courts who take action, you're more attentive to the law there.

Nobody is worried about China drone strikes, but they'll hand over IP or whatever is needed.

It was just an illustrative example which in particular can be severed from the rest without changing the point one bit.

And GDPR.

I would be interested in a financial product that provides just enough ownership in every public company that allows my corporate entity enough standing to seek damages from any of them. A legal liability exposure index if you will.

I can than profit off of being an activist investor with much more leverage utilizing much less capital.

In general damages are proportional to the harm you've suffered. If you only own a tiny amount of the company then you still spend a lot on a lawsuit but only suffered very low levels of economic harm.

If this is what you want, though, you could just buy a share of each public company. (An index fund wouldn't work, I don't think, you actually need to own the stock.)

(not a lawyer)

In that case, how about a derivative that is a bit like a credit default swap, but it's a sort of legal compliance swap? If a company follows the law, the issuer pays you a modest coupon, but if the company breaks the law, you have to pay the issuer a large indemnity.

It would be a bit like a pandemic bond:

https://www.iii.org/insuranceindustryblog/pandemic-catastrop...

You might even find ready counterparties amongst firms that do business with the company in question, or law firms who take them on on a retainer basis.

I unironically quite like this idea. Now, who do i know at an investment bank?

AIUI most countries, but not USA, award costs as the default position?

If that's true then in such countries you may only win an award of a few Euros but the cost to the losing party could be millions (your and their legal fees). If the company cave and accept liability, or whatever, then they're probably going to have to pay out to all shareholders (or customers); which might be even more cost.

So, even a small ownership can be leveraged.

If my understanding is correct then the unique USA system flips things putting the corporations in the power seat as legal costs for a case are usually much less of a proportion of their cash reserves/profits/available credit. Not awarding costs removes the multiplier making litigation too costly for all but the very richest in society.

in some places and situations the loser pays the cost of the other part's attorneys.

I think it might be more profitable to just be a lawyer to the folks suing.

that's only the first part of the piece. Then it goes on to show how everyone forgot how to do business and instead blindly trust random indexes, from exchange rates to chicken price (and one can easily extrapolate to BTC, which is oscillating on $9-15k every 15min for the past 5 hours btw --exchange wash trade scam news in 3, 2, 1...)

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