Goldstein, manager of Larchmont, N.Y., hedge fund Santa Monica Partners LP, together with other funds and shareholders, has been nudging the Warwick, N.Y., telecom for more than a year to put itself up for sale or auction off its passive 7.5% stake in Orange County-Poughkeepsie MSA LP, a wholesale cell-phone company it owns with Verizon Wireless LLC.

Goldstein lately has been writing letters to SEC Chairman William Donaldson arguing that Warwick Valley has become an unregistered investment company in violation of the Investment Company Act of 1940. Companies with more than 40% of their total assets in passive investments must register with the SEC as investment companies. In a May 6 letter to the SEC, Goldstein argued that Warwick is an investment company because, by his estimate, the company's operating assets are worth $45 million while the OCP stake is worth more like $100 million, or 69% of the total assets. To back this up, Goldstein points out that Warwick Valley's operating income was $3.4 million in 2003, or just 28.5% of total income, while the $8.9 million from OCP represented 74.1%.

Warwick spokeswoman Jennifer Abelson takes issue with Goldstein, saying the company is still primarily in the business of operating a telephone company. She declined to say whether the company plans to sell its OCP stake.

In a letter to the SEC in January 2003, Warwick Valley Telephone valued the OCP stake at $22.5 million and its operating business at $91 million.

Goldstein says the company should recognize that it is an investment business and then, for tax reasons, spin off the operating company and rename the OCP stake business Warwick Capital. Separating the businesses would immediately improve the company's overall value, he says.

But Warwick's financial and legal experts have concluded that such a restructuring plan would not produce significant tax benefits, Abelson says.

Splitting the company in two, Goldstein argues, would highlight that the operating business has declined every year for the past three years. It had income of $6.7 million in 2001, $5.3 million in 2002 and only $3.4 million in 2003. Meanwhile, profit from the OCP stake has risen from $4.6 million in 2001 to $8.9 million in 2003.

Goldstein also complains about the bonuses Pike and other executives have received. But, while Pike's may have gone up 184%, it still looks like pocket change by modern corporate standards: His bonus was $11,748 on top of his $216,000 salary.

Goldstein didn't invent the investment company pressure tactic. Investors have made the same argument against Farmer Brothers Co., claiming the family-controlled Torrance, Calif., coffee company should register as an investment firm because it has a cash hoard of $282 million, or 70% of assets. The SEC has filed suit only once previously against a company operating as an investment firm. In August 2002, it sued National Presto Industries Inc., contending that the Eau Claire, Wis., maker of kitchen gadgets was primarily an investment firm. Almost two years later, the case is still being litigated.

A source close to the agency says in addition to assets, it looks at whether executives are primarily engaged in running the operating business or spend all their time making investment decisions. She notes that in Warwick's case, despite the telecom company's performance, the executives are clearly focusing their energy on the operating business.

But Pike and others may not be concentrating on the operating business enough, Goldstein says. He could sue the SEC if it doesn't act quickly, he says. "It appears the SEC isn't particularly diligent in enforcing the Investment Company Act of 1940," he says.