Chicago-based independent futures brokerage and clearing firm R.J. O’Brien & Associates (RJO) has hired industry veteran Daniel Staniford as Executive Director, responsible for the firm’s institutional business development in New York and London.
Sunday, 4 December 2016
Last updated 1 day ago
Nov 15 2010 | 11:38am ET
Harbinger Capital Management is facing parallel civil and criminal probes into a controversial loan taken by firm founder Philip Falcone.
Both the Securities and Exchange Commission and U.S. Attorney’s office in New York are investigating that $113 million loan Falcone took last October to pay off unexpected tax liabilities. The hedge fund chief took the loan from the firm’s $2 billion Special Situations Fund, which is being liquidated after Harbinger suspended redemptions from the fund.
The authorities are also probing whether Harbinger gave some clients preferential withdrawal terms after it tightened its redemption policies following the financial crisis.
The $9 billion New York firm is already facing hundreds of millions of dollars in redemption requests following its disclosure of the loan—and its flagship’s 15% loss this year—including from investors Goldman Sachs, the Blackstone Group and the New York State Common Retirement Fund. Falcone has assured investors Harbinger will have no difficulty meeting those redemptions. Investors are limited to pulling 25% of their money per quarter from the firm.
According to the Financial Times, Harbinger has not received a Wells notice from the SEC, indicating that charges are imminent. And Falcone and the firm deny any wrongdoing. Falcone told The Wall Street Journal that his firm “did not give any preferential treatment to any investor,” and Harbinger said it is “fully cooperating with all the governmental authorities and providing all the information relating to any requested documents.”
The firm also denies that there was anything fishy about the $113 million loan. A Harbinger spokesman told the FT that the loan was needed after Falcone discovered a mistake made by a tax adviser.
“He didn’t have the $113 million because his wealth was substantially all invested in the fund,” the spokesman said. Falcone told the Journal that the loan “was reviewed by our accountants and outside legal counsel” and was disclosed to investors in the firm’s audited financial statements for 2009. He added that he has paid back more than $70 million of the loan, earning a profit for the fund’s investors, and that the rest will be paid back by 2014.
Falcone, who has some $2 billion of his own money invested in Harbinger funds, said the loan was made in accordance with the Special Situations Fund’s terms. The loan was backed by Falcone's investments with Harbinger.
Still, the SEC probe into the loan was apparently motivated by investor complaints. Clients were barred from redeeming from the fund at the time, and the regulator began looking into whether Harbinger informed investors in a timely enough manner, as well as whether the loan represented an improper increase in risk without investors’ knowledge.
The authorities are also investigating whether investors were adequately informed about the risks of Harbinger’s restructuring of the funds.