Ianal but having seen an egregious contract in action, I was told that the legality of a given contract depends very much on the kind of contract being signed and the kinds of people signing. The question is what sort of contract is "unconscionable".
For example, someone signing a standard residential lease wouldn't be expected to read fine print that says "after two years, rent doubles and I can kick you out and demand rent in advance". But someone signing a commercial real estate contract would be expected to read and abide just about anything, including something like that.
So I think how enforceable legal a contract that says "btw, there's a strong chance your money will wind-up with a stranger" depends on how well the investment literature really conveys that risk.
Also, I have the vague impression that the riskiest investments are reserved for high-net-worth-individuals (those with $2 million+ in non-real estate assets) because they can afford to lose more money.
>The question is what sort of contract is "unconscionable"
For those that don't know an unconscionable contract is a term of art, and basically means an otherwise lawful contract that the court will not enforce, because it is so unfair usually as a result of an unlevel playing field between the parties entering the contract. This is very good, and a legal theory I had not considered.
>So I think how legal a contract that says "btw, there's a strong chance your money will wind-up with a stranger" depends on how well the investment literature really conveys that risk.
Say for example the party who wrote the contract wrote it in a language they knew the majority of investors did not read because they could not read the language. Further, the contract drafter induced the majority of investors based on marketing materials in different language than the contract that the investors could read, but were ultimately were inconsistent with the underlying contract.
Another general rule of contract law where a promise, agreement or term is ambiguous, the court will enforce the meaning that works against the interests of the party who drafted to contract.
For example, someone signing a standard residential lease wouldn't be expected to read fine print that says "after two years, rent doubles and I can kick you out and demand rent in advance". But someone signing a commercial real estate contract would be expected to read and abide just about anything, including something like that.
So I think how enforceable legal a contract that says "btw, there's a strong chance your money will wind-up with a stranger" depends on how well the investment literature really conveys that risk.
Also, I have the vague impression that the riskiest investments are reserved for high-net-worth-individuals (those with $2 million+ in non-real estate assets) because they can afford to lose more money.