In a landmark ruling, the Australian Federal Court has found that monetary capacity alone cannot serve as a proxy for the sophistication of investors transacting in complex financial instruments. The judicial determination in Wingecarribee Shire Council v Lehman Brothers Australia that the investment bank had engaged in deceptive and misleading practice in both individual transactions and through investment management protocols by placing derivative contracts in portfolios managed by local councils has implications far beyond Australian shores. It follows considerable controversy in the United States over the decision to settle rather than to prosecute similar types of cases. The paper assesses the national and international implications of the Australian Federal Court ruling.  The paper argues that the judicial reasoning has not only clarified legal obligation; it also demonstrates significant failings in regulatory policy settings, both here in Australia and in the United States.