Bulldog Investors General Partnership v. Secretary of the Commonwealth
460 Mass. 647
Mass.2011Background
- Enforcement action alleging three Bulldog hedge funds offered unregistered securities to a Massachusetts resident via a public website and email.
- Secretary ordered Bulldog to cease violations and ensure future compliance with § 301 of Mass. Uniform Securities Act.
- Bulldog challenged the decision in two actions: one for judicial review under G. L. c. 30A, § 14, and a separate § 1983 action alleging First and Fourteenth Amendment violations.
- Massachusetts courts previously upheld personal jurisdiction and the Secretary’s determination in Bulldog I; First Amendment claim was not before the court then.
- Factual record shows Bulldog’s website and email communications were designed to solicit interest and constitute an offer, including disclosures and access controls.
- The Massachusetts act requires public offerings to be registered with disclosures; exemptions exist for private offerings and Regulation D, and Internet offers not directed to Massachusetts may be exempt.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Massachusetts prohibitions on general solicitation of unregistered securities violate the First Amendment as applied | Bulldog claims overbreadth and infringement of free speech. | Secretary asserts disclosure regime and private offering exemptions justify restrictions to protect investors. | Constitutional; restrictions are permissible as applied to this solicitation. |
| Whether the communications at issue constitute commercial speech and thus merit commercial-speech scrutiny | Bulldog argues speech is not purely commercial or is protected noncommercial content. | Courts should treat the materials as commercial speech designed to solicit offers. | The principal expression is commercial speech. |
| Which First Amendment standard governs the challenged provisions: Central Hudson or Zauderer, given the disclosure scheme | Central Hudson should apply as a speech ban; Zauderer is inappropriate since deception is not alleged. | Zauderer reasonable-relations test applies to disclosure requirements integral to securities regulation. | Zauderer reasonable-relations test governs disclosure-related restrictions. |
| Whether the challenged rules directly advance and are reasonably related to preventing deception and preserving market integrity | Disclosures are sufficient; broad restrictions unnecessary. | Disclosure regime and prohibition on general solicitation directly advance integrity of capital markets. | Regulations directly advance and are reasonably related to the state interest. |
| Whether Bulldog and others have standing to challenge the listeners' First Amendment rights (Bioness) and whether listener rights alter the analysis | Listener rights show information flow is protected and challenged regulations hinder access. | Speaker restrictions suffice; listener rights do not change standard of review for commercial speech. | Listener rights not violated; protections align with commercial-speech regulation. |
Key Cases Cited
- Virginia State Bd. of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748 (Supreme Court, 1976) (commercial speech protects right to receive information; informing consumers is desirable)
- Central Hudson Gas & Electric Corp. v. Public Serv. Comm'n of N.Y., 447 U.S. 557 (Supreme Court, 1980) (establishes four-part test for restrictions on commercial speech)
- Zauderer v. Office of Disciplinary Counsel of the Supreme Court of Ohio, 471 U.S. 626 (Supreme Court, 1985) (disclosure requirements upheld when reasonably related to preventing deception)
- Lorillard Tobacco Co. v. Reilly, 533 U.S. 525 (Supreme Court, 2001) (discourages overbroad restrictions; regulates speech with substantial public interest)
- Sorrell v. IMS Health Inc., 131 S. Ct. 2653 (Supreme Court, 2011) (heightened scrutiny when government targets speech content)
- Fox v. Trustees of State Univ. of N.Y., 492 U.S. 469 (Supreme Court, 1989) (commercial-speech regulation must be reasonably fit to ends; not necessarily least restrictive)
- Milavetz, Gallop & Milavetz, P.A. v. United States, 130 S. Ct. 1324 (Supreme Court, 2010) (disclosure requirements in advertising rely on Zauderer framework)
- Riley v. National Fed'n of the Blind of N.C., Inc., 487 U.S. 781 (Supreme Court, 1988) (cases recognizing limits and scope of disclosure and commercial speech)