Goldstein gives SEC an 'F' for Reg D stall

In his own entertaining way, hedge fund manager and SEC critic Phillip Goldstein is urging the commission to get on with implementing the JOBS Act and move quickly to allow hedge funds to advertise. In a sarcastic comment letter sent this weekend to the Securities and Exchange Commission, Mr. Goldstein told the agency to "ignore the wishes of Congress and president Obama [and] keep slowing down the rulemaking process." The SEC is set to vote Wednesday on proposing controversial rules that would let issuers of private securities, including hedge funds, solicit the public. The rule change is mandated under the Jumpstart Our Business Startups Act. The agency had planned to implement immediate rules last week but backtracked on that move. It will instead vote on putting out a proposal for public comment. SEC spokesman John Nester declined to comment on Mr. Goldstein's letter. The debate over the Reg D proposal has come down to what verification procedures issuers will have to use to ensure they market private placements only to accredited investors. Hedge funds have urged the SEC to let them continue to rely on signed statements from investors that they meet accreditation standards: a $1 million net worth and $200,000 annual income for single taxpayers, $300,000 for joint filers. State securities regulators are pushing the SEC to require investor substantiation of financial status, such as tax and income records. In an interview, Mr. Goldstein said any further hurdles are unnecessary. "There's nothing wrong with a [verification] form" issuers use now, he said. "The only worry with it is about people willing to lie." Mr. Goldstein describes a friend he calls Bernie, "an incurable risk-taker" who has lied on verification forms to invest in "can't-miss" private startups. "If Bernie has to … answer a lot of detailed questions about his financial status, he will likely … take his money to Las Vegas," he wrote. Foregoing a “few hundred thousand jobs due to lack of capital is a small price to pay to save the countless truth-challenged Bernies out there." In 2007, Massachusetts securities regulators charged Mr. Goldstein with violating the ban on solicitation of private placements. The state sought a $25,000 fine. He unsuccessfully challenged the action on free speech grounds and appealed the case to the U.S. Supreme Court, which this year declined to hear it. Mr. Goldstein said the Supreme Court probably saw that the Jobs Act, signed into law in April, had made his case moot. He said he has not paid the Massachusetts fine, and is asking the Massachusetts Securities Division to vacate the action. The division is opposing the request. Mr. Goldstein's argument "is based on specious arguments, including a modification in the federal law that in no way mitigates respondent's past violation," Massachusetts enforcers said in a formal reply this month.