Can The SEC Model Help Cure American Democracy?
We live in an age where access to vast amounts is right in our pockets, and literally everybody can become a publisher of information on social media, blogs, and news sites. This proliferation of information has profoundly impacted both stock markets and our political process. But the markets, it seems, have digested the abundance of information quite well, while our political process is in shambles thanks in part to the prevalence of misinformation on social media and other platforms. The phenomenon of widespread misinformation has turned into a growing cancer upon the world’s democracies. Perhaps stock market regulation could be used as a framework to mitigate the ubiquity of false political information and punish those responsible for spreading it.
Right now, Alex Jones can publish without having to worry much about any legal consequences. The only present recourse seems to be to hold him liable for defamation, which in practice is extremely hard. His targets are usually politicians and political parties, and they would find pursuing him and his ilk very expensive and consuming of time and energy. (Note the scorched-earth litigation tactics he is currently employing to defend himself against a suit brought by the families of the Sandy Hook victims, including seeking discovery of their current home addresses.). Moreover, pursuing Alex Jones in court risks amplifying his message. Yet, the damage he and others do to our country by spreading misinformation is very real and permeates throughout society.
Elon Musk, on the other hand, could face legal consequences after he tweeted a bizarre buyout proposal with the promise of “funding secured.” In the stock market, there is a government body to identify and punish those seeking to manipulate us through misinformation. That framework could work in politics as well.
Like ongoing plebiscites, stock markets are filled with buy and sell orders similar to votes for and against political candidates. The lifeblood of both the markets and the political process is information. The traditional source of stock market information was companies, similar to how political information used to flow largely from politicians and parties. The internet and social media had impacts on investing that were similar to those on politics. There sprang forth robust fora for investors to discuss and debate stocks.
Suddenly, investors could present information and analyses that could be so profound, other investors might react en masse. Influence suddenly became de-centralized, spreading from the companies and pundits (sell-side analysts and professional commentators) to the market itself. But with this decentralization of power came tremendous temptation to spread misinformation in order to generate trading profits. One of the earliest manifestations was fraudsters who began posting fake press releases of both good and bad news to try to cause market reactions.
For the past eight years, I have been an active participant in this decentralized information marketplace. I am an activist short seller. I write and say often unflattering things about companies and their managements. I have called numerous companies “frauds”, and referred to several managements as “criminals”. Yet I am able to speak very bluntly while accepting quite real and serious constraints on my speech. I would be manipulating, and possibly subject to financial ruin or imprisonment, if I made up material facts, or had little regard for their truth. I would also be manipulating if I didn’t have a real belief in the opinions I expressed. If I say I think a company is a fraud while really believing there is nothing wrong with its financials, the SEC would bury me.
Why not take this template and form a government body that focuses on information disseminated as factual or “news,” along with commentary based on cited facts. The mandate would be to focus on the individuals and organizations with wider reach. The standards to be applied would be to identify egregiously wrong (i.e., far from the truth), material (i.e., highly important to the reputation, qualification, soundness of a person, party, or proposal) facts that were cited without due regard for their truthfulness (i.e., without some diligence); or, opinions that aren’t genuinely held, but if heeded, tend to seriously damage others’ reputations.
Flagrant violations could result in substantial fines, disqualification from elected office, or imprisonment. It would be imperative that such an agency be politically independent, and as such it might be best suited to be part of the judiciary. While in today’s highly politicized environment, it is common to suspect a civil servant of acting with political motive, it shouldn’t be forgotten that there are a good many men and women in government service who act with honor and impartiality.
As a staunch advocate of the First Amendment, it pains me in some respects to advocate for some government role in political speech. However, judicial inquiry into subjects of the most sacredly held First Amendment principles is not without precedent. In a 1944 decision in U.S. v. Ballard, the Supreme Court held that it was valid to determine whether one’s claimed religious beliefs were genuine, which would be analogous to inquiring whether Alex Jones really believed that the Sandy Hook families were actors.
Citizens United further necessitates this type of re-thinking. From a Constitutional perspective, the Court decided Citizens United v. Federal Elections Commission correctly in my view, despite the clearly deleterious consequences to our society. By expressly allowing unlimited amplification of political messages, ensuring that these messages don’t contain egregious misinformation has become critical to the health of our country.
In past times of national peril, the Supreme Court has narrowed the scope of the First Amendment to meet the challenges of the day. The foundations of our democracy are under attack by enemies “foreign and domestic”. While not perfect, nor desirable in a more perfect world, using an SEC-type framework for political speech could save us from ourselves.