Con or Crunch

Q. A person I know is going around borrowing money for his business. I happen to know that his business is not going so great, so there is a good chance lenders may not get their money back. I feel like I should inform them, but I'm afraid that if I tell people I will actually be precipitating a failure and do more harm than good to the lenders.

A. Your question is a twist on the usual dilemma involving damaging disclosures. Let's examine the usual situation:

The Torah commands us, "Don't go about as a talebearer among your people; don't stand idly by the blood of your neighbor" (Leviticus 19"16). The first half of the verse prohibits slander or any other kind of damaging revelation about others, but the second half tempers that prohibition: Our concern for the reputation of the wrongdoer shouldn't induce us to stand idly by when someone is liable to suffer a loss from his actions.

The classic book Chafetz Chaim by Rabbi Israel Meir HaCohen explains how we harmonize these competing principles. Revelation is justified when there is no other way to prevent someone from suffering a loss, and when the revelation doesn't cause undeserved harm to the subject.

.Thus, the evaluation process is simple. First, we see if the potentially damaging revelation is really likely to save someone from a loss. If it is, we see if there is any other way to prevent the loss. If there is none, we check to see if the revelation will cause disproportionate harm to the subject of the disclosure. If there isn't, then disclosure is appropriate.

In your case, there is a twist. You can't evaluate the likelihood of loss in isolation from the reporting itself. The reason is that the very fact that you report the danger may actually augment the danger.

The key question here is the extent of the danger. At one extreme, borrowing money in a doomed effort to prop up a failing business is really a variation of a pyramid scheme. You're borrowing Peter to pay Paul until the day comes that you just can't borrow enough to pay off your debts. If the underlying business isn't viable then no amount of clever financing can save it. In this case, telling people about the business's problem won't be causing the failure but only hastening it, before the amount of unpayable debt balloons.

At the other extreme, many businesses, probably most, go through liquidity crises. Good, viable businesses don't always generate enough cash to meet ongoing obligations and they need loans to get them through a temporary crunch. If this is the situation, then sowing panic among creditors would harm the company and even the creditors themselves, inducing them to be first in line to obtain partial recompense when with a little patience they could get full repayment.

In general the lenders should be evaluating these risks, not you. So your main question should be: Do I have evidence that the borrower is engaging in fraudulent or misleading practices? If the borrower is giving a false impression of his firm's prospects or of its debt picture, then you will be doing the borrowers a favor by cluing them in. This may possibly trigger a collapse, but that is a consideration each lender can weight for himself

But if they are just overly hopeful or insufficiently diligent in evaluating the risks of a fundamentally legitimate business, I don't see any reason for you to intervene.