One piece of commentary I’ve heard around the Goldman fraud suit is that somehow Goldman can’t be guilty because the folks they allegedly ripped off were “sophisticated investors.” I’m not a lawyer, but like Tim Fernholz I can’t make heads or tails of what kind of legal doctrine this is supposed to be. Suppose I get shot and killed in New Orleans—is the shooter allowed to argue in court that as a sophisticated consumer of FBI crime data I should have known better than to walk around the city that had 63.6 killings per 100,000 residents in 2008?
Or consider another angle. One thing I’ve heard from low-income unbanked people is that they don’t want a bank account because they don’t trust the bank with their money. By contrast I, as a sophisticated investor, understand that there’s deposit insurance and a variety of other legal protections that ensure I’ll get my money back. A bank can’t break the law, steal my money, and then say because I was “sophisticated” it’s okay to lie to me. Sophisticated people are familiar with the law and rely on it when making decisions.