Phil Goldstein of Bulldog Investors Fund Challenging SEC on Hedge Fund Advertising Laws

Phil Goldstein of the Bulldog Investors Fund is preparing to take on the SEC over the coming weeks over the SEC's stance regarding hedge funds soliciting money from the public (or not being able to, as the case currently is).

Over the next couple of weeks, Goldstein is going to ask a Washington DC district court that the SEC rule regarding hedge fund solicitation be "struck out". Goldstein said in an article on FT.com that he just wants his hedge fund to be treated like any other business in terms of being able to build a website that could attract some new possible business.

Goldstein has tangled with the SEC before regarding this rule. William Galvin, Massachusetts securities regulator, apparently lodged a complaint against Goldstein for emailing performance details of his fund to someone that asked for them. Goldstein believes that this is a free speech issue, and that he is protected by the First Amendment and should be able to post such details on his site if he chooses to.

The specific rule states that only registered investment funds can solicit money from the public. Meaning, you would need to approach a hedge fund directly if you wanted to invest in the fund. The hedge funds are not allowed to post performance statistics on their web sites or in any promotional materials, for fear that these numbers could be used to solicit new money.

According to the article, SEC staff in 2003 recommended that the prohibition on solicitation be abolished, but the advice was never acted on.

Goldstein has successfully tangled with the SEC before, halting a SEC plan to force all hedge funds to register with it. It appears as though the SEC has another fight on their hands, as Goldstein is certainly not a pushover and won't let up in this matter.

I have to say that I fully support Mr. Goldstein's efforts, as the current rules regarding hedge funds make no sense to me. There are already rules in place that limit just who can invest in hedge funds. Only the very wealthy can invest in hedge funds anyways (you need a bare minimum in assets in order to be accepted), so I really don't see what the problem is with allowing hedge funds to post their results on their web sites or sending out some promotional materials to prospective investors. The rules are very strange and do not make a great deal of sense, and I really hope that Mr. Goldstein wins this battle.

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