“Sophisticated Investors”

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.