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Rethinking the Disclosure Paradigm in a World of Complexity Steven L. Schwarcz |
ABSTRACT:
In a prior article, I examined the factors that differentiate Enron's destructive use of off-balance-sheet special purpose entities, or SPEs, from the trillions of dollars of "legitimate" securitization and other structured finance transactions that use SPEs. The presence of meaningful differences, I argued, may inform regulatory schemes by providing a basis to distinguish which structured transactions should be allowed. In that connection, I encountered the dilemma that some structured transactions are so complex that disclosure to investors in the company originating the transaction is necessarily imperfect - either oversimplifying the transaction, or providing detail and sophistication beyond the level of most investors. In this article, I focus on solutions to this dilemma, arguing that complexity forces a rethinking of the long-held disclosure paradigm of securities law.
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