Financial Contracts and ‘Junk Bonds’ Purchases in the Italian Legal System: A Matter of (In)Correct Disclosure

Abstract

The essay is concerned with the protection of investors against purchases of ‘junk bonds’. As financial transactions are characterized by inherent risk, contractual unconscionability is not the relevant legal issue to be dealt with. The argument submitted by the author is therefore that protection of purchasers of financial products should focus of the nature and consequences deriving from liability triggered by reliance on negligent misstatements concerning economic information which induces investors to purchase ‘junk bonds’. Moreover, as the complex process underlying the issue and placement of financial securities involves the contribution of different professionals, their different roles should be reflected in a gradated liability scale covering each player contributing to the provision of these financial products. The conclusion is that civil liability remedies do not necessarily provide the only possible answer for the protection of investors: in addition, alternative remedies subsequent to the occurrence of damages (i.e., stricter criminal penalties), or preventive measures (such as applicable rules of conduct), as well as collateral sanctions (reputational risks), or new powerful procedural tools (class actions) may be able to support and protect investors more effectively than simple civil liability rules.