Even institutional buyers ignore the disclosure
Most people would agree that no one really reads the fine print.
Someone might glance at it, noting all the risk factors of a certain offering, and conclude that it all a bunch of regulatory boilerplate. People don't tend to take it seriously, assuming it is there little more than compliance reasons. That happens with IPOs all the time. The risk factors are often quite notable, but retail investors buy anyway.
This holds true at the institutional level to an even more troubling degree apparently. The Deal Professor has conducted a study for which he and a colleague reviewed the disclosure for a lot of CDO deals.
They found that, "When you actually look at the documents from some of the troubled investments during the financial crisis, in many cases the disclosure was copious. There were warnings of the risks; investors just failed to heed the warning signs that should have led them to further investigation. In other words, the disclosure failed to work."
Even in the ill-fated ABACUS deal, the focus of the SEC's suit against Goldman Sachs, the disclosure was plentiful. The disclosure even called on buyers to do additional investigation. The upshot of all this might be that more disclosure is doomed to fail. No one takes it seriously, no matter how voluminous or ominous. In the wake of the financial crisis, I can only hope that changes, and it might for a while. But in a mania, such reasonableness goes out the window.
- here's the essay