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News October 30, 2006 Issue

And So it Begins: Goldstein Files Form 13F Exemptive Application

Hedge fund provocateur Phillip Goldstein last week officially filed an application requesting an exemptive order excusing him from filing a Form 13F.

If his exemption is denied, heís gonna sue. "I would love to avoid litigation, but you tell me another way to do it," he said.

The application, filed October 24, closely resembles the earlier drafts he made available to IM Insight. It cites Constitutional case law alongside quotes from "tipster" newsletters, which harvest investment ideas off of other managersí Form 13F filings.

According to Goldstein, there are two changes of note from earlier versions of his application.

First, he specifically asked the SEC to consult with the Department of Justice. "[F]air consideration of this application requires that the Commission consult Ö the Department of Justice because of its expertise in trade secrets law, a key element of this application," the application reads. "If the Department of Justice concurs with our legal analysis, the Commission should either issue the required order or declare a moratorium on enforcement of Rule 13f-1 until it makes a determination that no compensation is due in connection with any filings required under Rule 13f-1."

"This is not really a securities law issue," explained Goldstein. "Itís a Constitutional one. In the end, if Iím challenged, thatís what itís going to be measured against." And thatís why he asked the SEC to consult with Justice. Securities lawyers "donít know the Constitution" and "are not really familiar with takings law and intellectual property law," he explained. "Before the SEC goes and spends millions of dollars in taxpayer money, they really should know what it is they are talking about."

The other significant change from his draft application is that heís requested no-action relief, asking the Commission to assure him that it would take no enforcement action against him under Rule 13f-1 until he has exhausted his administrative remedies. "You canít be considering an exemption but say ĎYouíve got to file,í" Goldstein explained. Filing a list of his holdings, he said, would defeat the "whole purpose" of his request. If it came to that, he added, "Iíd have to go to court. I donít think a judge would like that."

As he did in the days of his hedge fund litigation, Goldstein thinkís heís got a pretty good set of arguments. While securities lawyers are less optimistic, Constitutional law professors and intellectual property lawyers seem to agree with him. "I havenít found one IP lawyer who doesnít think itís a good case," he said.