On January 31, Massachusetts regulators filed an administrative complaint against Bulldog Investors General Partnership and affiliated entities thereof, as well as their principals, including Phillip Goldstein, alleging that the respondents engaged in an unregistered, non-exempt, public offering of securities in Massachusetts in violation of the Massachusetts Uniform Securities Act (the Mass. Act). Bulldog Investors General Partnership is a general partnership that offers investments opportunities in three distinct hedge funds (collectively, Bulldog) operating “activist” investment strategies. Bulldog and Phillip Goldstein are best known for successfully challenging the Securities and Exchange Commission rule requiring that investment advisers to most hedge funds register with the SEC as such.
The alleged violations of the Mass. Act stem from an interactive web site operated by the respondents. The complaint alleges that potential investors in Bulldog have “unrestricted access to general advertising and offering materials” through this web site, thereby resulting in a violation of the Mass. Act. According to the administrative complaint, prospective investors are able to access and print both Bulldog’s advertising and offering materials via this web site after acknowledging that they have read a disclaimer stating that such materials are not a solicitation or offer. (At present, the web site www.bulldoginvestors.comstates that it is “currently being updated.”) The complaint further alleges that the web site has “no meaningful restriction on access to the advertising or offering materials based on a prospective investor’s state of residence, investment sophistication or financial background.” The operation of this web site and the provision of advertising and offering materials, the complaint alleges, constituted a public offering of securities in Massachusetts for which there is no exemption available under the Mass. Act.
The complaint, filed by the Massachusetts Securities Division of the Office of the Secretary of the Commonwealth (the Division), seeks (i) a cease and disorder against the respondents, (ii) assessment of an administrative fine, and (iii) such other actions as necessary to ensure that the offering and sale of securities in Massachusetts are in accordance with the Mass. Act.
While the complaint alleges violations of Massachusetts rather than federal law, in arguing that the operation of the web site constituted a public advertisement and offering, the Division relied in large part on guidance from the SEC. Such guidance, the Division stated, provides that a hedge fund manager’s web site must be password-restricted, whereby only pre-screened qualified investors are allowed to view fund-specific information.