Falcone Says No To Settlement With Ban

Dec 23 2011 | 11:24am ET

Harbinger Capital Management founder Philip Falcone rejected a Securities and Exchange Commission settlement offer that included a multi-year ban from the securities industry.

Falcone turned down the offer prior to disclosing earlier this month that he and two other Harbinger executives had received Wells notices from the SEC, indicating that the regulator's enforcement division had recommended action against them. The SEC said it was looking into civil fraud charges stemming from several matters, among them possible manipulative debt trading, a controversial $113 million loan Falcone took to pay a tax bill, and allegations that Harbinger gave preferential treatment to some redeeming investors, including Goldman Sachs.

Falcone's rejection of the proposed deal was first reported by The Wall Street Journal.

Harbinger and the executives have denied any wrongdoing. The firm suspended redemptions in the wake of the Wells notice disclosure.

Falcone's rejection of the settlement offer is no surprise, as it would have all-but-ended his career. A multi-year ban would force Falcone to either shutter Harbinger or turn its day-to-day operations over to others, an option that is made more difficult by the potential of fraud charges against his top deputies, Omar Asali and Robin Roger.

It also came as Falcone is desperately trying to win regulatory approval for LightSquared, a wireless Internet venture into which he has poured more than half of Harbinger's assets.

Neither the SEC nor Harbinger indicated what, exactly, the SEC is looking into. But the alleged market manipulation occurred from 2006 through 2008, when Harbinger made a mint betting against subprime mortgages. The regulator is also investigating the loan, since repaid, that Falcone took in 2009, and whether Harbinger, in the same year, allowed Goldman to redeem $50 million while withdrawals were restricted, without allowing other investors to do likewise.


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