Goldstein to SEC: Back off
By Dane Hamilton
Who’s afraid of the big bad SEC? Not Phil Goldstein.
“The SEC is not there to protect investors,” scoffed Goldstein, an outspoken hedge fund manager in an industry shrouded in secrecy. “The SEC is so tied up in red tape and garbage that they are useless.”
Goldstein, who runs the $500 million activist hedge fund Bulldog Investors, was just getting going as he delivered an off-the-cuff address to investors yesterday in New York.
The former civil engineer, who started his hedge fund in 1992 at age 47 – an age when many successful fund managers are looking to retire – is now gearing up for a new campaign against what he says is useless and counterproductive hedge fund regulation.
Among his pet peeves “general solicitation” rules, which bar fund managers from pitching their strategies to “unsophisticated investors,” or people without money.
Most hedge fund managers interpret this as a gag order to varying degrees, forcing most to speak only “off the record” to the media and others for fear of arousing a reputation-damaging regulatory investigation or fundraising block.
Goldstein has a darker view, equating the fear to pre-World War II Germany, when no one challenged Nazis as they shipped Jews and gypsies off to death camps.
“This culture of silence and fear reminds me of how people acted when the Nazis started rounding people up,” Goldstein told an audience of hundreds of investors at an Argyle Executive conference, only half-jokingly.
And why not abolish “accredited investor” rules too? The rules – which basically bar anyone but millionaires from putting money into hedge funds – smacks of a Nanny State in which investors are protected from themselves, he said.
Anyone can invest and lose money in commodity futures, stock markets, mutual funds or gamble in Atlantic City – but not hedge funds. “Who the hell is the SEC to tell me what I can invest in?” Goldstein asked.
Goldstein has reasons to stick his finger into regulatory eyeballs. He won a lawsuit in 2006 that forced the SEC to drop rules requiring hedge funds to register as investment advisors. Now he’s being sued by William Galvin, the Massachusetts Commonwealth Secretary, for not properly barring his Web site from giving access to “non-accredited investors.”
“Galvin, up until recently, was an Eliot Spitzer wannabe,” sneered Goldstein. “He hates hedge funds. It’s like a modern day Salem witch trial. Anything that goes wrong must be due to hedge funds.”
Goldstein, who said he’s looking for legal support in an industry that is terrified of regulators, has some ideas on how history will view him. He compared his campaign to that of Rosa Parks, the 1960s black civil rights figure who refused to move to the back of the bus.
“A hundred years from now, no one will know who Steven Cohen is or John Paulson is,” said Goldstein, referring to two of the most successful hedge fund managers around today. “But they will all know Goldstein vs SEC. It will still be on the books!”
The SEC declined comment.