What if Politicians Had to Comply with Business Antifraud Rules?

Have you ever wondered what would happen if we held U.S. politicians to the same anti-fraud rules that apply to America’s public companies? The U.S. securities laws include a general antifraud provision known as Rule 10b-5. This rule says a company and its leaders cannot “make any untrue statement of a material fact or…omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.” It also says they cannot “engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.”

Rule 10b-5 not only covers affirmative statements that are fraudulent, it also covers statements that defraud by omitting information that should be included to make the information that is presented not misleading. The rule essentially reminds us that fraud by omission is still fraud. Try applying that to a typical negative political campaign ad or tweet.

If businesses or their executives used the misleading information and manipulative advertising tactics used by many of America’s politicians, the Securities and Exchange Commission would be after them for fraud and the media and the public would be up in arms. Yet too many politicians and PACs from both parties (yes, both) do this every day in one form or another.

The problem has been getting worse, fueled by political bitterness, social media, the decline of local newspapers and the rise of politicized cable channels and national media that increase revenue by inciting their intended “echo chamber” audience. (If you have not witnessed this in action, compare the major cable news channels and a few Twitter hashtags when national political news comes out.)

Could we actually regulate “fraudulent” political speech? Legally, probably not. At the risk of sounding a bit jaundiced, the politicians write the laws and have little interest in subjecting themselves to these constraints. Applying rules like 10b-5 to the political arena could also mire every political race in endless litigation or politically-biased regulatory overreach—a point to remember if Congress ever decides to increase regulatory controls over social media content. Most importantly, the First Amendment to our U.S. Constitution would likely get in the way. The First Amendment provides particularly strong protection to political speech because it goes to the heart of our democracy. If you are interested in the nuances, see Freedom of Speech and Press: Exceptions to the First Amendment, published by the Congressional Research Service.

So, does that mean “fraudulent” political speech is a necessary part of the American political landscape? Are we stuck with this worsening situation?

At a time when everything is becoming politicized, from sports to business to science, the answer depends on whether the American people—and American businesses—care enough to demand 10b-5 level truth from politicians and from the media that cover them. (“Fact checking” that itself is biased is part of the problem.) In many ways, the stakes are even higher than the risks of business fraud. In a democracy, truth does matter, even when we dislike it. A post-truth internet world where truth depends largely on who said it, or what racial, political or other group or hashtag is associated with it, threatens democracy to its core.

Businesses have a special role in pushing for truth in our politics. They know and respect the antifraud rules that demand truth in advertising, the public markets and business transactions. They also know the importance of truth in their business deliberations and analysis. Few successful businesses would put up with employees who intentionally and repeatedly disregard or manipulate the truth in meetings or other discussions. In our business we call America, why do we accept a different standard from the politicians we hire to run the place? #politics