DealBreaker of the Year Candidate: Phil Goldstein

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One of the biggest stories in finance this year was going to be the rule that hedge fund managers would be required to register with the SEC. Instead, it turned out to be that this regulation was surprisingly short lived, thanks to the bold lawsuit filed by Phil Goldstein, the founder of Bulldog Investors and today’s candidate for DealBreaker of the Year. Many in the hedge fund industry had complained about the rules but despite having the wealth to sustain a lawsuit, none of them put their money where their mouths were except Goldstein. This might have been testimony to the industries fear of angering the regulators, or to the lack of interest on the part of people who run hedge funds from engaging themselves in anything that doesn’t involve making money.
Goldstein’s suit argued that the registration rules were arbitrary and not based on existing securities laws, and a federal appeals court agreed. The SEC set about reconsidering its rules, and decided it would not—at least for now—attempt to find a creative way around the court’s ruling by adopting some other registration rules. Instead, it took several months to consider the rule and just today adopted a rule requiring raising the financial bar for “accredited investors” permitted to invest in the funds. Recently Goldstein launched a second lawsuit, contending that rules requiring funds to disclose assets violate the intellectual property rights of hedge fund managers by revealing their investment strategies to others.
Goldstein was raised in blue-collar Brooklyn, and worked as a New York city civil engineer for 25 years before moving into money management. With $225 million under management, Bulldog may be small compared to some funds but it’s clear that Goldstein is anything but small time.
He’s also very modest, referring to his investing strategy as “investment for dummies.” He comes off as witty and friendly in person but he can be absolutely devastating in arguments. When confronted by one supporter of the SEC disclosure rules who kept insisting that nothing of value was being disclosed because the information was often dated. This was Goldstein’s trap. If the information was worthless, collecting it was an arbitrary exercise, and all the more reason for the courts to overturn it, Goldstein replied. Ouch!
Goldstein’s lawsuit changed the hedge fund world this year. And that is why backdating is a candidate for DealBreaker of the Year.
Value Added: Goldstein stood up where no others would, daringly risking provoking the wrath of the SEC. The entire hedge fund world owes Goldstein a debt of gratitude.

Risk Factors: The end of registration for hedge funds helped provoke a world-wide cry for new regulations in the industry, and has most recently resulted in the SEC imposing stricter requirements for hedge fund investors. One day we might look back on the old registration process and wonder if it really was worth overturning.
Should Goldstein be the DealBreaker of the Year? So far, Goldstein is up against challenges from Hank Paulson, Patricia Dunn, Brian Hunter and backdating. But we’re not done yet. We invite you to let loose with your inner-most feelings in the comments section below. And if you have other candidate you’d like to nominate, please feel free to email us at tips@dealbreaker.com. (If you can use the format we’ve laid out above, all the better. If it’s a hassle, we’ll take ‘em as we get ‘em.) If we use your nomination, you’ll get a free copy of Winning: The Answers: Confronting 74 of the Toughest Questions in Business Today.
More on Phil Goldstein:
A David Toppled Hedge-Fund Rule, But Was Goliath Really So Bad?
[Wall Street Journal]
Do Hedge Funds Hold 'Trade Secrets'? [Business Week]
Hedge-Fund Hero? Maverick Attacks SEC Restrictions [Wall Street Journal

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