Connecticut Attorney General Richard Blumenthal recently offered his opinion in the case of a hedge fund manager accused of soliciting clients by maintaining a company Web site.

Blumenthal argued with Phillip Goldstein, manager at Bulldogs Investors Opportunity Partners, Wednesday on CNBC's "On the Money" with host Melissa Francis.

Massachusetts Secretary of State William Galvin charges Goldstein with soliciting clients on the site, while Goldstein claims his first amendment rights protect it.

"I never thought that in this country, somebody could be sued by a state regulator for essentially giving truthful information about a commercial product in response to an unsolicited request," Goldstein said.

Blumenthal, who has referred to the hedge-fund industry as "a regulatory black hole," said Goldstein would be better off dumping the free speech defense and proving his site is a private offering, not a public solicitation.

He also said Goldstein is doing the industry "a terrible disservice" because most hedge fund investors prefer to stay quiet with hopes of avoiding the issue.

"It's amazing to me that a regulator like yourself can just blow off the first amendment," Goldstein said. "You test a law or regulation against the first amendment, not the other way around. I defy you to find a constitutional lawyer that doesn't agree with me."

Goldstein fought and defeated the Securities Exchange Commission in June 2006 when a federal Court of Appeals ruled that the SEC exceeded its authority when it required certain hedge fund managers to register as investment advisers.

Hedge funds are usually used by wealthy individuals and institutions, which is allowed to use agressive strategies that are unavailable to mutual funds, including selling short, leverage, program trading, swaps, arbitrage and derivatives.

After the Goldstein decision, Blumenthal indicated that states would have to take more initiative in regulating the industry if Congress did not.

Galvin's complaint against Bulldog Investors was filed Jan. 31

"The Respondents maintain an interactive web site through which potential investors have unrestricted access to general advertising and offering materials," it says.

"By failing to restrict access by prospective investors, the hedge funds fail to comply with applicable securities registration requirements. Indeed, the hedge funds rely up on an inadequate procedure whereby a prospective investor can access advertising and offering materials via the web site by merely acknowledging that he or she has read a web site disclaimer that states the material is not a solicitation or offer."