Not all actions harmful to a company are legally prohibited, just as not all actions that benefit a company are legally required. If that were true, it would mean the government would be dictating every aspect of company policy, which defeats the point of having a market in the first place.
We cannot catch all instances of market sabotage by looking for blatant violations of law. The absence of such violations does not mean sabotage is not going on.
What are some examples of legal ways to harm a business? Suppose business A opens a location competing with business B. Decision-makers in business A have an incentive to short stock in business B before doing this.
Suppose business A is about to open a facility that has negative externalities that discourage certain other local businesses, such as a factory producing a lot of pollution, an airport producing a lot of noise reducing nearby property values, or a liquor store or casino which may increase crime and decrease the appeal of the area. Decision-makers in business A then have an incentive to short stock in the affected local businesses.
Suppose a legislator is considering a bill that would harm business A. The legislator has an incentive to short stock in business A before passing the bill. If the legislator is listening to a lobbyist from an opposing business, the lobbyist and his backers also have an incentive to short stock in A, once they are confident the bill will be passed.
"But such sabotage almost never happens."
Like the shorting of United and American Airlines stock just before 9-11.
Not all actions harmful to a company are legally prohibited, just as not all actions that benefit a company are legally required. If that were true, it would mean the government would be dictating every aspect of company policy, which defeats the point of having a market in the first place.
We cannot catch all instances of market sabotage by looking for blatant violations of law. The absence of such violations does not mean sabotage is not going on.
What are some examples of legal ways to harm a business? Suppose business A opens a location competing with business B. Decision-makers in business A have an incentive to short stock in business B before doing this.
Suppose business A is about to open a facility that has negative externalities that discourage certain other local businesses, such as a factory producing a lot of pollution, an airport producing a lot of noise reducing nearby property values, or a liquor store or casino which may increase crime and decrease the appeal of the area. Decision-makers in business A then have an incentive to short stock in the affected local businesses.
Suppose a legislator is considering a bill that would harm business A. The legislator has an incentive to short stock in business A before passing the bill. If the legislator is listening to a lobbyist from an opposing business, the lobbyist and his backers also have an incentive to short stock in A, once they are confident the bill will be passed.
Or coordinating a highly public boycott driving the stock way down; Target comes to mind.