First Amendment 1, SEC 0

"Today his hedge funds manage over $500 million in assets, and they have averaged more than 15% annual returns over their lifetime. ... His biggest scuffle so far has been a succesful legal challenge to an SEC rule requiring hedge funds to register. ... This time he had run afoul of the top securities regulator in Massachusetts, who accused [Phil] Goldstein of marketing his fund to average investors--a big no-no for unregistered investment advisors. Rather than pay the fine and move on, Goldstein is fighting back. ... 'I have thought for some time,' says constitutional lawyer Floyd Abrams, 'that a day would come when the courts would take a fresh look and conclude that there is a significant level of First Amendment protection that has been denied for many years in securities law. This case is a more than respectable argument.' ... After a few debacles, Goldstein discovered his sweet spot: the quirky, logic-defying world of closed-end funds. ... Goldstein thinks these funds provide a perfect opportunity to exploit market inefficiency. ... They are just a sliver of the mutual fund market: $245 billion in total closed-end funds assets, out of nearly $5 trillion for all mutual funds. ... (In response to all inquiries about Goldstein, SEC spokesman John Nester said, 'We can't publicly discuss investors' private communcations to the commission.') ... So when the SEC came out in 2004 with a new rule requiring all hedge funds advisors to register in an attempt to make the industry more transparent, Goldstein was outraged. ... The SEC did not help its case by refusing to explain why it wanted to regulate hedge funds. ... The Investment Company Act of 1940, which regulates nonpublic funds, does not say anything about talking to the press, much less about websites. ... To Goldstein, it doesn't make any sense that the world can read letters written by Warren Buffett to his investors, but not those by investor Eddie Lampert, who runs a hedge fund", Telis Demos at Fortune, 23 June 2008.

The SEC's contempt for the First Amendment is of long standing. Why did the SEC want hedge funds to register? My guess: to appear to be doing something as opposed to the difficult work of ferreting out and punishing securities fraud. It's easy to collect paper, it's not so easy to conduct investigations of potential wrongdoing. Further, if you do, you might make powerful enemies on Wall Street and limit your future employment prospects. Answer: look busy and do nothing.