12 Fordham J. Corp. & Fin. L. 1079 (2008)
Edward Pekarek
Introduction
Two-Thousand-Six was a year in which the opaque investment pools commonly known as “hedge funds” provided frequent headline-fodder through scandals, congressional testimony, and the collapse of Amaranth Advisors, a nine billion dollar hedge fund implosion that exceeded the financial scope of the Long Term Capital Management Asian currency debacle. Yet despite these swirling scandals and controversies, many of the broader equity indices established record levels and the domestic capital markets barely blinked. Among the luminaries of the 2006 hedge fund universe was Phillip Goldstein, a former New York City municipal employee who is now the activist manager of a group of pooled investments operating under the moniker “Bulldog Investors.” Mr. Goldstein took the Securities and Exchange Commission (“SEC”) to task in a successful challenge [FN8] of the so-called “Hedge-Fund Rule.” The United States Court of Appeals for the District of Columbia Circuit was apparently persuaded by Mr. Goldstein's definitional theory as to the term “client,” and vacated the entire investment adviser registration regime as “arbitrary.”
Apparently emboldened by his appellate victory, Mr. Goldstein again tilted at regulatory windmills months later and petitioned the SEC to exempt his “Bulldog” hedge funds from certain portfolio reporting requirements. This Article analyzes Section 13(f) of the Securities Exchange Act of 1934 and Mr. Goldstein's effort to avoid the Section 13 reporting regime through an intellectual property and due process theory. Mr. Goldstein has asserted that compulsory disclosure pursuant to Section 13(f) is an unconstitutional regulatory taking in violation of the Fifth Amendment because he contends that his hedge fund portfolio positions are trade secrets. Mr. Goldstein, however, has reportedly admitted his petition is merely a “pretext for a lawsuit,” and that petition failed to articulate the substance of these purported trade secrets with the required measure of particularity to properly assert a trade secrets claim. “Bulldog's” October 24, 2006 petitioned to the SEC for an order pursuant to §13(f)(2) of the Exchange Act of 1934 that would exempt the “Bulldog” funds from the reporting requirements embodied in Rule 13f-1(the “Goldstein Application” or the “Application”) is also flawed due to the absence of any demonstration that he or his “Bulldog” funds utilized “reasonable efforts” to ensure that the portfolio holdings at issue remained secret. Mr. Goldstein's trade secret theory is also significantly undermined because he and his funds have made public disclosures that could eliminate any trade secret status, which, among other facts and issues discussed herein, erode the theory of the Goldstein Application to such an extent that the SEC may properly deny the requested relief.
