Various commentators on the recent SEC case against Goldman Sachs, and according to press reports Goldman in its Wells submission, argue that it was merely following industry practice and therefore cannot have fraud liability. Caveat emptor was replaced by the statutory duty to make full and fair disclosure of all material facts by the '33 and '34 Acts. So too, the duty to disclose means that industry practice is not defense. Nowhere do the securities laws limit the duty to disclose material facts when it is industry practice not to. See, Richard C. Spangler, Inc., 46 S.E.C. 238, n. 55 (1976) ("[U]nder no circumstances... can he claim the existence of a general reprehensible practice to insulate himself from the effects of conduct which he knew or should have known operated as a fraud.").
So lets move on. It doesn't matter whether everyone else does it. It matters only if the undisclosed facts were material. And it doesn't matter that the investors were sophisticated. There is no exemption in the law from disclosing material facts to sophisticated investors. Yes, shocking as it may sound the securities laws protect all buyers, not just the unsophisticated.
