Let us solicit!

Hedge fund manager Phil Goldstein is taking the Securities and Exchange Commission to court – again. In 2006 Goldstein successfully blocked the regulator from requiring hedge funds to list. Now he wants the SEC to lift a ban that prevents non-registered investment funds from marketing to the public.
These funds are currently only allowed to advertise to accredited investors as defined by Regulation D of the Securities Act of 1933.
Some funds have interpreted this to mean they cannot talk to the press about or post any information in the public domain about funds in the market. The SEC has never prosecuted a fund manager for a violation of this de facto ban, but the specter remains that it might some day.
In 2003 the SEC staff proposed a relaxation of the ban, stating that “there seems to be little compelling policy justification for prohibiting general solicitation or general advertising in private placement offerings of…Funds that are sold only to qualified purchasers.”
But the SEC has not yet acted on the recommendation. At issue in this case is a website for Goldstein’s firm, Bulldog Investors. The site is currently inactive, according to the firm, because of an enforcement action incurred after the hedge fund responded to an email inquiry from a visitor to its public website, brought against the firm by the Secretary of the Commonwealth of Massachusetts. Goldstein said in a statement that he believes there is “significant uncertainty” as to whether a hedge fund can legally operate an open website without running afoul of the SEC.
“We believe that (1) a ban on hedge fund websites and electronic communications with website users does not provide protection to investors, and (2) the First Amendment applies to all websites and communications that provide truthful and nonmisleading information about products and services that may legally be sold to qualified persons, including the websites of hedge funds,” the statement says. At press time Goldstein was planning to file suit in the Washington DC district court in the next few weeks. If he is successful, hedge funds and private equity funds would have license to talk openly about their fundraising efforts without fearing punitive measures from the SEC. But given both industries’ well-known aversion to the public eye, it is unclear if either would take advantage of this new-found freedom.