Questioner:
I saw that some halakhic decisors permit buying shares abroad on the grounds that one follows the majority, and most shares abroad are owned by non-Jews. They mentioned Rabbi Feinstein as being lenient in this context. Some also mentioned opinions that holding a small number of shares does not constitute influence over the company, and the problems apply only to someone with significant control. Along with this, some mentioned problems of trading in forbidden foods.
What is your opinion on this? Likewise regarding foreign bonds.
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Rabbi:
My view is that holding shares is not treated as ordinary ownership, certainly not when you have no control. I know there are disputes about this, but that is how it seems to me. However, if there is a company that plainly engages in prohibited activity as its main business and not incidentally, such as a pornography company or one that markets pork or produce forbidden as orlah, as opposed to a company that markets fruit including some orlah produce, then there is room to be stringent under the law of commerce in prohibited items.
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Questioner:
The question is whether it is permitted to invest in market indices like the S&P 500, or whether one must verify that each of the 500 companies is not doing prohibited things like the ones you mentioned?
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Rabbi:
In my opinion, no. There is no clear and obvious prohibition here.
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Questioner:
Should one be concerned about the prohibition of interest when buying bonds of foreign companies, in case the companies are Jewish-owned or partially Jewish-owned?
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Rabbi:
In my opinion, same as above.
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Questioner:
Regarding the kashrut of the process of short selling through a foreign broker in foreign stocks. The process works like this: the shareholder, me, lends shares to someone in the market requesting the loan, some random person abroad. That borrower pays me and the broker, who is the intermediary between us, interest on the share loan. After the shares change hands, the borrower sells them on the market. Near the end of the loan period, say a month, the borrower buys back the same shares on the market and returns the shares to me plus interest. The economic logic behind this from the borrower’s perspective is that if the borrower thinks the shares will go down during the loan period, he profits. For example, suppose the borrower sold the shares he borrowed from me on 1/11 for 100 dollars, and bought them back at the end of the loan period, on 1/12, for 90 dollars; that way he made a profit of 10 dollars and suppose he paid 1 dollar in interest, for a total net profit of 9 dollars.

The question is whether such a move, where I lend shares, is permitted, or whether there is a prohibition of interest or of a loan of one measure for one measure.

I thought there might be grounds to permit it because most people abroad are non-Jews. I’d be glad to hear your opinion on this.
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Rabbi:
It is indeed somewhat similar to interest in the form of one measure for one measure, but in my view there are several doubts here: 1. There is no guaranteed profit here, since the two of you disagree about whether the share will go down or up, so clearly this is at most a rabbinic prohibition. 2. The whole issue of interest in relation to trade whose purpose is monetary profit, as opposed to a loan to someone in need, is problematic. I very much doubt whether the prohibition of interest applies there at all. 3. The question whether shares are like an ordinary physical measure of goods, and I recall that some halakhic decisors have already discussed this. 4. Add to that the fact that the majority are non-Jews, and it comes out to even less than a rabbinic doubt.
So bottom line, I think there is no impediment to doing this.
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Questioner:
Is it also permitted to receive the coupon payment for the loan itself, meaning that even if the share price remains stable I still receive a fee from the borrower for the loan, beyond the issue of one measure for one measure.
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Rabbi:
That is of course more problematic, and still, the consideration that the majority are non-Jews seems to me enough to be lenient.
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Questioner:
Recently I invested a small amount of money on a peer-to-peer lending site called Tarya. The site lends the money on the basis of a heter iska, as stated in the loan terms. But recently I started wondering about the validity of the heter, because I assume some of the loans are given to private individuals who are not using the loan for profit, say someone taking a loan for a wedding or even to cover overdraft. If so, doesn’t that undermine the whole essence of the heter iska here?

Also, I looked into investing through a site called CreditPlace, where they buy payment obligations of small businesses, usually checks at net + 30, 60, or 90, and give them cash in return minus a certain fee. From what they told me, they said they do not need a heter iska because they are not lending but buying a debt. Is that indeed correct?
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Rabbi:

Regarding a loan for consumption and not for business, there is indeed a serious problem. Still, most halakhic decisors permit it on grounds that are not entirely clear. Perhaps one can rely on that together with the fact that a bank is an institution and not a private individual.
Buying a debt is not a loan, and there is no issue of interest.
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Questioner:
In the case of peer-to-peer loans, there is no bank in the middle; the loan is directly from peer to peer without an intermediary factor.

But this is what I saw in several sources:

“When the recipient does not invest the money in a business venture: since the permission to receive profits is by way of placing his money as a deposit in the recipient’s hands, the recipient must have some investment that yields profits. Then, even if he does not actually invest the money he received but uses it for his private needs or to pay his debts, this is also permitted, because it was agreed in the heter iska that if he wishes to use the money for his own needs, he transfers to the giver a share in his other assets, and will give him profits from those other assets.” (From the text of the Brit Pinchas heter iska.)

Also, in Yalkut Yosef it is written:
25. It is permitted to open a savings plan in a bank, even though after some time he receives interest, because in the banks of our times there is no Torah prohibition of interest, even though the shareholders and board members and managers are all Jews, since the managers and shareholders are not personally liable for the money, and there is no one upon whom the prohibition can take effect. So too wrote later authorities. Nevertheless, when taking the loan, he should tell the bank manager that he is doing so on the basis of a heter iska, and likewise when signing the bank loan document he should add in handwriting that everything is done on the basis of a heter iska. He must understand what a heter iska is for it to be effective according to Jewish law. Likewise, it is permitted to take a loan from a government office, such as the Ministry of Housing, even for the purchase of an apartment, even though they charge interest on the loan, and even though for him the apartment purchase is not a business but only for residence. It is good that before signing the authorization form to repay the loan from his account, he should add in handwriting that everything is done on the basis of a heter iska. [Huppah VeKiddushin p. 517, and see there at length in the note on interest in banks and in a limited liability company.]

26. Nowadays, when the permission to borrow from banks, with ordinary interest, is based on a heter iska, ideally the borrower should invest the borrowed money in merchandise and not pay debts with that sum, nor wedding expenses for his son or daughter, because then there is no business venture here. Likewise, if he withdraws from his account for his livelihood and thereby causes himself to be in debt in the account and commits to pay interest on that, ideally it is not proper to do so. Nevertheless, many are lenient in this, for even if he takes a loan from the bank not for merchandise, still it is proper to use the money also for some form of commerce, just as several later authorities permitted taking a bank loan with a heter iska for the purpose of buying an apartment. Furthermore, some say there is no prohibition of interest in a limited liability company, because this is not a loan from one private lender to another, and the lien of the loan is not on all the assets of the bank’s shareholders but only on the shares serving the bank. It is preferable to try to keep one’s entire account in a government bank, since that is somewhat more lenient.

Logically, when I think about it, suppose someone has a savings fund that yields him a 5% annual return, and suddenly he falls into financial distress. He has two options: break the savings fund, and suppose once broken it can no longer be deposited into, or take a loan. If he takes the loan, then even if the loan money is not directly used for a profitable business, it still enables preservation of the savings fund, which is an existing profitable enterprise, so the result is the same. Isn’t that so?

And another question regarding the reason for the prohibition of interest:

As I understand it, the reason is to protect the poor and help them. But the very prohibition against taking interest from the poor actually puts them in a worse situation than they would be in without the prohibition, because most people will avoid lending to them since they cannot earn the interest they could receive from any other investment, real estate, a bank deposit, a loan to a non-Jew, government bonds, stock investment, and so on. It seems that this commandment simply does not fit the conditions of the modern economy at all.
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Rabbi:
That is exactly what I meant when I said that a bank is a corporate institution, and that this should be added as a factor. And when I wrote that the halakhic decisors bring various problematic explanations, I meant among other things this argument, that if he has some other business and he borrows for personal consumption, one can view the loan as enabling him to conduct that business, and that is also the last example you brought. But it still seems problematic to me, although I think most halakhic decisors permit it.
As for the reason for the prohibition, this commandment was not suited even to earlier generations, and that is exactly why Hillel instituted the prosbul, though he only did so once the cancellation of debts in the Sabbatical year had become a rabbinic law. More generally, already in the Talmud we see that benefiting lenders ultimately helps borrowers as well; see, for example, Babylonian Talmud Sanhedrin 3a, the enactment of “locking the door.” Your assumption that the purpose of the prohibition of interest is to benefit the poor does not stand up to the halakhic facts in my opinion; for example, there is also a prohibition of interest on the borrower.
By the way, Prof. Haym Soloveitchik in his book Jewish Law, Economics, and Self-Image mentions that he did not find among the commentators anyone who brings the moral reason as the basis for the prohibition of interest.

Following up on this question, in the appendix on kosher investments of the Badatz it says regarding investment in stocks:
“Anyone who is an owner, even of a single share, may be considered a full partner in the company and responsible for all the prohibitions committed within the company, such as the Sabbath, interest, leavened food on Passover, trade in prohibited items,
and of course almost all the laws of Choshen Mishpat. The sale of real-estate shares can include the prohibition of selling land in the Land of Israel to a non-Jew.”

Here is a link to the appendix:
https://drive.google.com/open?id=0BwJAdMjYRm7IeUJCVUEzRU01cWM

They propose investing in stocks indirectly by investing in an ETF instead. An ETF is a financial instrument that gives you ownership of a number of stocks by creating a sort of holding company that owns the shares listed in the fund. Presumably, according to their approach, this creates a separation between the company and the investor. In the appendix they write regarding ETFs:
“ETFs and the like, and other derivatives, it has been clarified after deep investigation and inquiry that they do not constitute partnership in the company itself, but rather various obligations.”

My question is whether in your opinion it is permitted to invest directly in stocks. And even if it is, should one nevertheless be concerned for the opinion of those who prohibit it, when the price is damage to annual return and therefore also damage to the amount of money set aside for tithes.

As I wrote above, in my opinion it is not reasonable to prohibit ordinary investments. You do not own anything in the company despite having shares, unless you have some control over its decisions. Whoever wants to be stringent and cautious is welcome to do so, because this is not a negligible concern, but in my assessment there is no obligation to do so.

The question is whether it is worth being stringent about this when it will lead to a reduction in tithe money. That is, the tithes I set aside for charity come from capital gains, and if I am stringent about this matter, it will mean there is less money, among other things, for charity.

The investment is made in order to earn, not in order to give tithes. So I do not think tithes are a consideration. Tithes are given after there is profit, and one need not make this or that investment in order to increase tithes.
Someone who invests so that all the profits will go to charity obviously has more room for leniency.

By the way, you wrote above:
“You do not own anything in the company despite having shares unless you have some control over its decisions.”

Nowadays even small shareholders receive voting rights on decisions that the board brings to a shareholder vote. This is also more common nowadays because voting is done online. The question is whether that means there is reason to prohibit direct investment in shares. By the way, in an ETF you do not have voting rights over what happens in the companies the fund invests in, and your vote passes to the company issuing the ETF.

If so, perhaps the situation is different. It is hard for me to answer that without looking into it more deeply.

Does the issue of shareholder voting change things you said in the past regarding taking and giving loans to companies some of whose shareholders are Jews, immersing utensils produced by a company some of whose owners are Jewish shareholders, and the like, since now it is more similar to a partnership?

One has to remember that even if someone who votes is considered a real owner, the company is still a corporation, and as such its private owners do not have ordinary ownership status. The different treatment of a company as a company should not change because of voting rights.
Therefore, regarding loans I think there is no problem, because a limited liability company is not a party to the prohibition of interest, regardless of who its owners are, Jew or non-Jew. Investment in prohibited things, such as Sabbath violations, idolatry, and the like, could already be a different matter. As I said, I still tend to think it is permitted, but it is worth checking.

Theoretically, this could serve as a mechanism that allows one to bypass many halakhic prohibitions. Any person could set up a limited liability company solely owned by him, and through it perform all the halakhic prohibitions that do not apply to companies but only to private individuals, for example lending with interest. If you say that 100% ownership is different, one could create a corporation of, say, 10 people into one limited liability company and operate through it. The same goes for Sabbath prohibitions, the prohibition against possessing leaven on Passover, evading the obligation to immerse utensils, and so on.

In law there is also something called “piercing the corporate veil,” about which Wikipedia writes:
Piercing the corporate veil is a legal tool that makes it possible to attribute the obligations and rights of a limited liability company to its owners.
The use of the mechanism of piercing the corporate veil is an exceptional step, contrary to the principle of separate legal personality, a principle underlying the whole idea of incorporation. Therefore the courts use it only in exceptional cases, when there is no choice given the circumstances, and any other legal outcome would cause harm to another party.

If it is possible to attribute the company’s financial obligations to its owners, perhaps by analogy we can learn that it is possible to attribute the owners’ normative obligations to the company itself.

The principle of piercing the veil is itself the solution. When the court reaches the conclusion that this is a fictitious veil and really מדובר in a private person who wants to act with protections and not a genuine company, it pierces the veil. In such a case, halakhically too perhaps we would not view this as a company but as an artifice by a private person.

Even if we say that strictly speaking this is permitted, is this something that you yourself would do, or would you be stringent out of concern for the view of those who disagree?

When I had certain sums to invest, I did so.

I mean now that you know there is the possibility for every small investor to participate in the company’s decision-making.

As I said, this still requires further examination. My inclination is that it is possible, but it is hard for me to answer conclusively right now regarding questions that are not connected to the very fact that the company is a corporation, as I explained above.

Just to sharpen the point, voting rights are generally only for very significant decisions like appointments to the board or changes in authority for board members, but not ongoing management decisions.

By the way, Google allows purchase of two types of shares: shares with voting rights and shares without. Aside from the voting-rights issue there is no other difference between them. As far as I know, Google is unique in this distinction.

I looked again at the words of Rabbi Moshe Feinstein, and it seems that already in his time he addressed the issue of shareholders’ voting rights, “the share owner has an opinion in the choice of president,” and he saw this as something that does not constitute grounds for prohibition, unless we are dealing with a major shareholder, in which case he has decisive influence over appointments to the board. Here are his words:

Regarding buying shares in companies that do labor and business on the Sabbath, we see that the practice has spread to permit it, and the reason is simple: those who buy shares should not be considered owners, since it is only something from the business and they have no say at all in the business, even concerning their portion. They are not comparable to an ordinary partial partnership where one has a say as an owner. Also, the purchaser of shares does not want to be an owner in the business and does not want to acquire anything in the business; rather, he is only like one who buys the profit and loss that will exist in the business according to the amount he purchased. And it appears even more that there is no category of acquisition in them according to Jewish law, since this is an acquisition of something not yet in existence, but only by force of the acquisitions recognized in the law of the state. As for the fact that according to the terms of sale the share owner has an opinion in the choice of president, this is merely empty verbiage, because in practice they retain for themselves more than a majority so that his opinion is irrelevant, and the buyers also do not wish to express an opinion in this because it is not their intention to acquire this. Therefore, in my humble opinion one need not be concerned with what the owners of the companies do, since it does not relate to them. And even if there are also Jews among the owners, this should not be considered assisting transgressors, because the business will be conducted even if he does not buy shares from them, for there is no shortage of people who will buy shares, and the buyer purchases only for his own benefit. Therefore there is no prohibition in this at all, as many people do, even those who fear sin. But certainly to buy such a large amount that his opinion will be taken into account should be prohibited, even in a factory and business of non-Jews, since they did not make the stipulation that must be made when a Jew enters a partnership with a non-Jew, as stated in Shulchan Arukh, Orach Chayim 245.

You can see that Rabbi Feinstein qualifies his words by saying that if he has a large quantity of shares, such that he has influence over the conduct of the company, then the law changes. But if we are dealing with a small shareholder, then even though he has some influence over appointments to the board and the like, there is no problem with it.

What do you think about this?

That is exactly what I said. From simple reasoning it does not seem that the voting ability of a small shareholder changes the situation in any essential way.

Following up on this question, you wrote above: “However, if there is a company that plainly engages in prohibited activity as its main business and not incidentally, such as a pornography company or one that markets pork or produce forbidden as orlah, as opposed to a company that markets fruit including some orlah produce, then there is room to be stringent under the law of commerce in prohibited items.”

Recently I’ve been interested in companies like Coca-Cola, Danone, McDonald’s, and a cattle-raising company; I’m interested in short selling them. These are food companies that presumably make their living mainly from selling non-kosher food. Does that fall under what you said above? And even if so, would short selling be permitted despite the prohibition on ordinary investment?

Still, if it is not explicit, maybe McDonald’s is an exception, I do not think one can prohibit it. When there is a company that openly deals in non-kosher food, it is reasonable that this is prohibited.
Beyond that, the prohibition of commerce in prohibited items applies to engaging in such commerce yourself. But if you buy shares in a company that does so, that is already a more remote argument for prohibition under the law of commerce in prohibited items. You are not trading in the prohibited merchandise but in percentages of ownership in the company. True, there is ownership of the company through shares, and then you are engaging in trade in the products themselves as the company owner. But that sort of ownership has already been discussed above, and in my opinion there is room to be lenient.

I am not sure I know what the difference is between a short and an ordinary share. As I understand it, in a short you are not an owner because it is not actually a share but only a play against the shares. Correct? If so, then there is no commerce in prohibited items here, by my reasoning above squared.