Market Sabotage is Rare

Stock markets trade a lot of money estimating the expected future profits of each firm. And in principle, stock traders should be able to profit by selling (or shorting, or buying puts on) a firm’s stock, and then sabotaging that firm. Such as by burning down a factory, putting poison in its ingestible product, or killing a top manager.

But such sabotage almost never happens. For example, in 2002 a sys-admin put a logic bomb in PaineWebber computers after buying puts. But he lost money, and then was caught. In 2010 a mid-cap European firm’s CEO was poisoned by someone who had shorted the firm’s stock, but he was caught and the CEO survived. The 911 commission looked for trades profiting from from prior knowledge of that, but found none.

Yes, there are many examples of selling and then releasing bad (and maybe false) info about firms, or starting lawsuits based on such info. But the closest I can find to successful firm sabotage is launching (or threatening) ransomware or data-theft attacks on firms after selling their stock. There are also examples of individuals burning buildings and hurting people after buying insurance on such things.

I conclude that in practice successful sabotage is quite rare, and seems to be limited to cases where an individual can trade with their own assets, and cause the harm directly and personally, while feeling pretty safe from detection.

Typical prediction markets have far less money at stake than typical stock markets, so we should expect far less sabotage there when individuals have comparable abilities to influence events at issue. We should only see a substantial risk of sabotage there for events that are far easier to causally influence that firm stock value.

To the extent that you are worried about sabotage, the first thing to do is to make sure that trading records can be subpoenaed when there is suspicion of a crime.