Harbinger To Suspend Redemptions As SEC Eyes Loan, Goldman Redemption

Dec 12 2011 | 1:42pm ET

Harbinger Capital Partners, facing possible Securities and Exchange Commission fraud charges for a variety of alleged misdeeds, will suspend redemptions from its four main hedge funds.

In a statement Friday, Harbinger and founder Philip Falcone explained that "the decision to temporarily suspend withdrawals is necessary when balancing the preservation of value for all Feeder Fund investors." The redemption bar is set to take effect on Dec. 30.

The move comes after Harbinger, Falcone and two other executives at the hedge fund received Wells notices from the SEC, indicating that the regulator's enforcement division has recommended action against the recipients. Harbinger said it was "disappointed" by the notices and that it "strongly" disagrees "that any violation of federal securities laws occurred."

Neither Harbinger nor the SEC have given any indication as to what the former is alleged to have done wrong, other than to say that some sort of potential market manipulation is under investigation. But published reports indicate that potential preferential treatment for Goldman Sachs and a controversial loan Falcone took from his hedge funds two years ago are among the matters cited by the SEC.

Both matters stem from 2009. In that year, Falcone took a $113 million loan to pay a tax bill. Falcone has since repaid the loan and has denied any wrongdoing, but the SEC is investigating his disclosure of the loan to investors.

Also that year, Harbinger may have allowed Goldman Sachs to redeem $50 million without allowing other investors to do likewise. Redemptions from the hedge fund were restricted at the time.

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