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Philip Goldstein, Episode III: The Revenge of the Regulators!On The Money Smackdown Tonight

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It wasn’t quite the ‘shot heard ‘round the world’ that Ralph Waldo Emerson said set-off the Revolutionary War in Concord, Massachusetts, but Philip Goldstein’s rebellion against hedge fund regulators certainly seems to have caught their attention. And tonight the revolution will be televised.
Goldstein, who founded the Bulldog Investors hedge fund, was the money manager who sued the Securities and Exchange Commission over a requirement that hedge fund managers register with the commission. The rule overstepped the SEC’s legal authority, Goldstein claimed. And when a federal appeals court agreed, the rule fell by the wayside. The SEC declined to pursue the case further with an appeal to the Supreme Court, and hedge funds were relieved of the burden of government registration.
We’ve come to think of that as Episode I in the saga of Goldstein. It obviously annoyed some at the Commission who had sought the authority. But it bugged state lawmakers and regulators too. Many state lawmakers and regulators who would like to exercise authority over hedge funds suddenly found themselves without the shield of federal authority. Without that shield, state lawmakers wanting to regulate hedge funds risked driving them away in search of laxer regulatory environments.
In Episode II, Goldstein filed a lawsuit against mandatory disclosure provisions in securities regulation. This time he argued that the disclosure amounted to the government taking his intellectual property—meaning, his investment strategy—without compensation and without any real justification. That case is still making its way through the courts.
In Episode III, the regulators struck back. Earlier this year, Massachusetts Secretary of State William Galvin sued Goldstein, alleging that he was soliciting ordinary, non-accredited investors to buy into his funds. Goldstein responded that he was simply exercising his rights under the First Amendment and accused Galvin of not understanding the concept of free speech. On CNBC’s On The Money, Goldstein took his challenge to Galvin a step further, offering to wager $100,000 that he will win his case.
“I’m not going to let some pompous ass sitting in Boston tell me I can’t talk to somebody or give somebody information when they ask for it,” Goldstein said in February. “This is not really about hedge funds; it’s about the First Amendment, and I think Galvin is just trying to get a trophy.”
Earlier this week, Goldstein’s lawyer launched a strongly-worded letter at the Secretary of State’s office. At a hearing, someone called James Cappoli from the Secretary of State’s office had accused Bulldog of soliciting investors with a brochure available through its web site. “Bulldog Investors has produced above average returns with below average risk, enticing the investor to invest with no risk,” James Cappoli said. Goldstein’s lawyer pointed out that Cappoli’s reading seemed to confuse the notion of “below average risk” and “no risk.”
It should all come to a head tonight, when Goldstein makes another appearance on CNBC’s On The Money. Our spies inside of the network tell us he will be up against Connecticut Attorney General Richard Blumenthal, better known as Connecticut's answer to Eliot Spitzer.
The first time Goldstein offered to wager $100,000 on his case, both Blumenthal and former SEC boss-lady Laura Unger turned him down. We hope that Blumenthal will man up and take Goldstein’s bet this time. But somehow we doubt it.