Whether the new SEC hedge fund regulations will prove to be a net good for investors is an open question. However New York-area fund manger Phillip Goldstein thinks he can predict the answer to this question ( that would be, "No") and has taken the federal government to court to make his point:

Via The Journal News:

Pleasantville hedge fund manager challenges new rules

By Jay Loomis & Allan Drury
The Journal News

New U.S. Securities and Exchange Commission rules that went into effect last week require most hedge fund and fund-of-funds managers not already registered as investment advisers to register. A fund manager with 15 or more investors and $30 million or more in assets must register. Those with $25 million to $30 million in assets are eligible, but not required, to register.

Phillip Goldstein likes to think of himself as a bulldog willing to wage a fight. For 13 years, those battles have generally been against corporate America through his $90 million hedge fund company with four employees — named, appropriately enough, Bulldog Investors — that buys stakes in underperforming companies and presses management for changes. But lately, this bulldog from Pleasantville has generated his share of headlines for a courtroom fight against another powerful foe — Uncle Sam.

Goldstein, 61, has pursued a federal lawsuit in Washington for more than a year challenging the Securities and Exchange Commission over new regulations governing the hedge fund industry. Those new rules, which went into effect Wednesday, require that advisers to hedge funds with assets of more than $30 million register with the SEC, beef up record-keeping and open themselves up to potential SEC inspections. Being under the close watch of government regulators is an unfamiliar feeling for hedge fund companies that previously operated in virtual secrecy, shunning publicity and offering little information to regulators and investors.

The new rules go into effect at a time when the hedge fund industry, like other pillars of the U.S. financial system, has lost some of the public's trust due to scandals. The behavior of some funds and their managers embarrassed the industry and brought calls for more government scrutiny. "I am not suggesting that we will catch all hedge fund fraud," SEC Commissioner Roel C. Campos said recently at an industry conference, according to a transcript on the Web site. "I believe, however, that regulation will act as a deterrent to those who currently see no barriers to fraud. It also will sift out the dregs from the industry. ... Investors need a cop on the beat when it comes to hedge funds, and the SEC is here to be that watchdog."

But Goldstein, the Pleasantville hedge fund manager, said the SEC rules will do little to deter those wrongdoers intent on breaking the law, while significantly increasing costs, red tape and intrusive inspections for legitimate hedge funds. "It is tremendous amount of money that will be spent on lawyers," Goldstein said. "Investors will pay for that indirectly, just like other costs"...

The court has yet to rule in Goldstein's case, but you can bet The Daily Caveat will be watching for updates. Check out the complete details in the full article.

-- MDT