Is the 'Sophisticated Investor' Theory Still Relevant?

Abstract

What is known investor doctrine a defense poses significant challenges: it is subjective, ambiguous and in many instances irrelevant to complaint against which it is offered a defense. Unlike arbitration, sophisticated investor defense is generally unavailing in federal securities litigation because antifraud provisions of federal securities laws are construed objectively and as a general matter, securities laws do not distinguish between sophistication and unsophisticated investors; both are entitled to protection, of disclosure and antifraud provisions. In addition, the Act[s] does not speak in terms of sophisticated opposed to unsophisticated people dealing in securities. The rules when giants play are same when pygmies enter market. This article explains why use of defense should be challenged in any securities arbitration of a unsuitability claim.