Rethinking the Disclosure Paradigm in a World of Complexity
35 Pages Posted: 8 Nov 2002
In examining 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, I encountered the dilemma that, like in Enron, many such legitimate transactions are so complex that disclosure to investors of the company originating the transaction is necessarily imperfect - either oversimplifying the transaction, or providing detail and sophistication beyond the level of even most institutional investors and securities analysts. My article focuses on solutions to this dilemma, arguing that complexity forces a rethinking of the long-held disclosure paradigm of securities law.
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