Friday, 25 July 2014
Last updated 16 hours ago
Oct 9 2007 | 1:50pm ET
He’s been called a “bully” and a “pompous ass” for his lawsuit against activist hedge fund manager Bulldog Investors, and now Massachusetts Secretary of the Commonwealth is firing back, albeit through more genteel channels.
Galvin’s office on Friday filed their arguments against Bulldog’s motion for an injunction ending Galvin’s improper solicitation case against the hedge fund in Massachusetts Superior Court. Galvin is suing Bulldog, headed by Philip Goldstein, the author of the aforementioned epithets, for allegedly marketing its wares to a non-accredited investor in Massachusetts.
Goldstein and New Jersey-based Bulldog have argued that their Web site and e-mails to interested parties constitute protected speech under the First Amendment.
Bulldog has until Oct. 16 to respond, with a court hearing on its motion scheduled for Oct. 23.
In July, the Massachusetts Securities Division found that Bulldog had solicited an unqualified investor, recommending a cease-and-desist order and $25,000 fine. Goldstein has called that proceeding a “show trial,” seeking to have it tossed in Superior Court.
According to the most recent filing by Patrick Ahearn, Galvin’s chief of enforcement, the Web site, e-mails and “individualized, ‘follow-up’ e-mail to a Massachusetts resident constituted a public offering.”
“Any Web site visitor had access to the offering materials, rather than [Bulldog] gearing its solicitations to previously accredited persons, or persons with access to knowledge about the securities offering adequate the protect themselves,” Ahearn wrote. In addition, Ahearn cited a letter to investors written by Goldstein and allegedly sent to a Web site visitor, calling it “misleading.”
“Goldstein’s misleading statement in the e-mail letter that the recipient/offeree could be ‘sure’ that the interests of management of the Bulldog fund would be consistent with his own personal interests is directly controverted by the holding” in the celebrated Goldstein case, in which a federal court struck down the Securities and Exchange Commission’s hedge fund registration requirement. Goldstein’s letter had trumpeted his and his partners’ substantial investments in their own funds. “Bulldog’s Web site/e-mail communications included exactly the sort of misleading statements which the registration requirements are designed to prevent, or minimize.”
For his part, Goldstein calls Galvin’s latest allegations “crap.”
“They actually had to stoop (for the first time) to arguing that I made a misleading statement in our letter to investors,” Goldstein said. “This is preposterous. Not that there is nothing even remotely misleading about the selective quote they complain about, but it is they that intentionally seek to mislead the court by taking it out of context.”
The brief goes on to argue that Bulldog’s Web site and e-mails do not merit First Amendment protection.
“The regulations in question concern solicitations ‘to obtain… money’ which by definition are regulable words, not words protected by the First Amendment,” it says. “Likewise, purported disclaimers of solicitations ‘to obtain… money’ are not protected speech.”
Goldstein dismisses these arguments, as well.
“At this point, the only way I can see losing is if Judge Fabricant would be afraid to be the first judge in the country to rule that a securities regulation violates the First Amendment,” he said. “I also think their brief does not address at all the First Amendment rights of our co-plaintiff, Leonard Bloness, a Massachusetts resident, to obtain information about Bulldog Investors. I did a search for his name and found nothing. That says a lot about Galvin’s respect for free speech.”
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…