Phillip Goldstein, the hedge fund manager who successfully challenged the SEC's hedge fund registration requirement, has now set his sights upon SEC Rule 13f-1. In a filing last week with the SEC, Goldstein claims that Rule 13f-1, which requires institutional investors with more than $100 million in US-listed equities under management to report their holdings each quarter, is an unconstitutional "taking."
Goldstein notes that institutions spend millions of dollars generating investment ideas, which many closely guard as trade secrets. By placing those ideas in the public domain, Goldstein argues, SEC Rule 13f-1 violates the Fifth Amendment's takings clause. That clause states:
"nor shall private property be taken for public use, without just compensation."
Goldstein also argues that Rule 13f-1 serves no legitimate regulatory purpose. The legislative history indicates that Section 13(f)(1) of the Securities Exchange Act of 1934, under which Rule 13f-1 was promulgated, was intended to enable the SEC to analyze the effects of institutional trading on securities markets. However, according to Goldstein, the rule was never used for that purpose.
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