Financial disclosures that are written so that it is impossible for the average citizen to understand it has been, and remains, a bad idea, according to former SEC Chairman Arthur Levitt.
In The Wall Street Journal on Saturday, Levitt called for language in financial documents that was clearer and easier to understand. In other words, don’t use big words and industry terms that ordinary people have never seen. Jargon and legalese, he said, while they protect the discloser of a product’s risks, often do nothing for the potential investor, who remains as ignorant of the risks as if the documents were written in a foreign language—which, in a sense, they are.
Citing the attitudes of Mark Twain and Will Rogers toward big words and obfuscatory (that’s “designed to make things unclear”) explanations, as well as the time-honored instruction by editors to reporters to “tell it to Aunt Edna,” Levitt once again entreated the financial community to clarify disclosure so that ordinary people without legal educations or financial expertise can understand the risks of the products they’re buying.