IS IT enough for the financial community to disclose vital information in the fine print, or to bury material data inside prospectuses, or to put all sorts of legal disclaimers on broking reports or offer documents, and then hide behind the maxim of caveat emptor when things go belly-up and the finger- pointing starts?

Where exactly should the boundaries of caveat emptor extend to and, more importantly, what recourse is there for parties hurt by failure to read or understand the fine print?

Take the fiasco involving Lehman Brothers' Minibond notes that were sold to retail investors about 18 to 24 months ago.

They are now the subject of some dispute because the risks, true nature of the product and Lehman's role were not highlighted at the point of purchase.

Some have argued that caveat emptor should apply as most - not all - of the relevant information was in the prospectus, even if some of it was in fine print and the rest couched in technical jargon.

Others have said that even if Lehman's role as the central player behind Minibond was highlighted, investors would still have bought the product as nobody at the time could have foreseen the coming financial meltdown. Hence, there is no basis for claims of compensation.

How valid are these assertions?

Here we have essentially an insurance policy taken out by Lehman Brothers via its own special-purpose vehicle named Minibond to protect its exposure to six prominent banks known as 'reference entities'.

The money invested by the Singapore and Hong Kong public formed the insurance payout should any of the six have failed over the period in question, and in return for the use of the public's money, Lehman paid the public an attractive annual coupon of 5 per cent which was, in effect, an insurance premium.

If caveat emptor is to be reasonably used as a defence (or a criticism of the retail-investing public for not reading or understanding the offer documents), then the cover of the prospectus should have had a description of the exact nature of the product as an insurance policy, the fact that Minibond was Lehman, the financial standing of Lehman, Lehman's reasons for needing the insurance, and that the risk of loss was not limited to one of six banks failing, but seven.

Since this was not the case, there must surely be grounds for claims that disclosure was poor, possibly even misleading and that a defence of caveat emptor is not good enough. If buyers were being made aware, then there should have been full and proper disclosure of all essential elements in the proper fashion.

By the same token, is it good enough for brokers to include ridiculous disclaimers on the cover of reports to the effect that those reports may be biased because the broker may have a business relationship with the company being covered?

What all this illustrates is that the local market has gone overboard in its eagerness to institutionalise a disclosure-based regime and to cement the maxim of caveat emptor as its guiding pillar.

Banks have been allowed to sell all sorts of dubious structured products to naive buyers without sufficient safeguards, brokers have been allowed to sell possibly biased research and companies whose disclosure may be lacking are not penalised hard enough.

In the United States, the hazards of putting too much faith in caveat emptor have been painfully obvious - the entire financial crisis is due to poor regulation that allowed investment banks to indulge in financial jiggery- pokery of the highest order.

It's time the authorities here had a fundamental rethink of the entire philosophy relating to how markets are regulated and to not only make buyers aware of the risks, but also sellers.

This article was first published in The Business Times on October 15, 2008.