Phillip Goldstein is an unlikely torchbearer for the swashbuckling hedge-fund industry.
He was a New York civil engineer for 25 years before launching his fund from his basement in Brooklyn, and he drives a Toyota Camry.
"Before that, I had a Corolla," Goldstein said.
But the 60-year-old Goldstein is leading a closely watched effort to prevent the Securities and Exchange Commission from greatly expanding regulation of the trillion-dollar hedge-fund business.
He is suing to overturn a new rule that would force hedge funds managing more than $25 million to be registered with the agency by Feb. 1 and undergo periodic audits. He appeared to gain traction last month when a federal appeals panel peppered SEC attorneys with tough questions about the legal justification for the rule.
The SEC says it must get a handle on the freewheeling investment pools that are mushrooming in popularity among pension funds, endowments and wealthy individuals.
The agency points to a spate of recent hedge-fund frauds, as well as the collective force the funds have on financial markets.
"Sometimes we learn about someone managing $1 billion when we read about them in the newspaper," said Robert Plaze, associate director of the SEC's investment management division. "We're talking about a trillion-dollar industry whose activities have a broad impact on the markets and investors."
Opponents counter that the rule would do nothing to combat fraud but would raise investor costs and sap some of the nimbleness that has made hedge funds successful.
"They are a big part of what's keeping the economy growing and you don't want to hobble that," said John Berlau, an economic-policy fellow at the Competitive Enterprise Institute, a Washington think tank.
Big-picture issues aside, Goldstein's case may be decided on narrow legal grounds.
He contends that the SEC lacks authority to extend its regulatory reach, and is intentionally misinterpreting a 1940 law that has, until now, largely exempted hedge funds from oversight.
The three federal appellate-court judges who heard the case in Washington on Dec. 9 focused on that issue. A ruling is expected this month.
"It is clearly a means to get at their end, which is to regulate hedge funds," Goldstein said. "And that offends me. It's intellectually dishonest."
There's little doubt that hedge funds have become a dominant presence in global securities markets and are taking a larger profile in the economy as a whole.
Hedge funds are known for taking large risks in pursuit of market-beating returns and, thanks to the staid performance of equity markets, institutions and wealthy individuals are clamoring to get in.
More than 8,000 hedge funds manage $1 trillion, accounting for as much as one-fifth of U.S. stock-trading volume. They're an increasing force in such areas as arranging mergers and lending money to companies.
About 40% of hedge-fund managers already are registered with the SEC, either voluntarily or because of other requirements.
However, some fund managers are going out of their way to avoid the agency. Funds must be registered if they allow investors to redeem their holdings within two years. Therefore, many funds' lock-ups have been extended to two years instead of one.
The SEC rule generated significant controversy when the commission approved it by a 3-to-2 vote in late 2004.
Two Republican commissioners excoriated then-Chairman William H. Donaldson for backing the plan.
Donaldson's successor, former Rep. Christopher Cox, a Newport Beach Republican, surprised Wall Street by promising to let the rule stand.
But the plan has also divided consumer activists.
Tyson Slocum, director of energy research at Public Citizen, says oversight is needed because of the funds' enormous economic effect.
In the energy sector, for example, some of the surge in oil and gas prices is because of speculative hedge-fund trading, he said.
"This is a very modest proposal, and the fact that the industry and its sympathizers are predicting so much gloom and doom is pretty crazy," Slocum said. "This is not heavy-handed regulation."
But other consumer advocates question whether the SEC should devote limited resources to funds catering to the wealthy.
The SEC is "there to protect investors," said Mercer Bullard, a University of Mississippi law professor. "They're not there to protect sophisticated investors."
Goldstein doubts his investors will benefit from the rule.
"I don't think it's going to do my investors any good, and it's going to be costly," he said.
During an interview in his kitchen in suburban Westchester County, Goldstein -- dressed in khakis, a green sweater and old sneakers -- hardly fits the image of a hedge-fund manager, much less one with the temerity to take on the SEC.
Goldstein specializes in value investing, often buying stakes in closed-end mutual funds or troubled companies and agitating for changes to boost stock values.
He left Brooklyn for Pleasantville eight years ago but boasts about how he still clings to frugality.
"I still save returnable bottles," he said. "I've got a big bag of them in my garage."
With prodding from a partner, Goldstein began his first fund, Opportunity Partners, in December 1992 with 10 investors and $700,000.
He's never had a losing year, he said, and averages 16% annual returns. He oversees more than $250 million.
Goldstein graduated from USC, and many of his investors live in the Southland.
At the core of Goldstein's case is his belief that only Congress can extend regulation of hedge funds.
"It offends me when agencies act like they're the king," he said.
Although he's received moral support and a bit of financial help, no one has publicly joined Goldstein's effort.
"Most people are afraid to sue the SEC," he said. "They're afraid of retribution."
But Goldstein says he's not worried.
"If you haven't done anything wrong, and I haven't, you shouldn't have anything to fear by speaking out," he said.