Falcone Will Blame Ex-COO, Lawyers In Loan Defense

Jul 6 2012 | 12:13pm ET

Harbinger Capital Management founder Philip Falcone has promised a "vigorous" defense against fraud charges that threaten to destroy him, and at least part of that defense will be to blame others.

The Securities and Exchange Commission last week sued Falcone and Harbinger, accusing him of wrongdoing on three counts: a controversial loan he took from the hedge fund to pay his taxes, allegedly granting preferential redemption treatment to favored investors, including Goldman Sachs, and of market manipulation. A fourth allegation, that Harbinger "shorted into the deal" on three public offerings, was settled.

Falcone, who laid out some of his potential defense to the SEC during settlement talks that failed, plans to point the finger at Peter Jenson, Harbinger's former chief operating officer, and two lawyers for giving him the green light on the $113 million loan.

According to Falcone, Jenson—who was also accused by the SEC of misleading Harbinger investors about the loan—and the two lawyers gave their approval to the loan plan. The lawyers were Harbinger in-house counsel Robin Roger, who received a Wells notice from the SEC last year but has since been told she won't face charges, and a lawyer from Sidley Austin.

Falcone never spoke to the Sidley lawyer directly; Roger's lawyer, Paul Schechtman, told The Wall Street Journal that she "relied on a distinguished outside lawyer for legal advice and on Harbinger's business people for the facts and gave her best independent judgment. The SEC said that Harbinger ignored one law firm that advised against the loan and provided "materially incorrect information" about the fund, which had restricted redemptions, to Sidley, which isn't accused of any wrongdoing.

Jenson's lawyer, Charles Clark, told the Journal that Falcone ignored his client's advice on the loan.

"Any position by Mr. Falcone that he was not aware of all facets of the loan, the underlying legal advice, or his final approval of it, is not supported by the evidence," Clark said. "Mr. Falcone withheld material information from my client pertinent to the loan and failed to act on other elements of my client's advice relevant to the loan."

In any event, Falcone plans to argue that the loan, which has since been repaid with interest, was in the best interest of Harbinger's investors. At the time the loan became public, Falcone noted that most of his assets were invested in Harbinger's funds. He also plans to argue that a threatened tax lien on his Harbinger investments could have hurt the fund's other investors.

Falcone and his lawyers are also honing his defense against charges that he and Harbinger gave Goldman preferential treatment in exchange for their votes in favor of tough new redemption restrictions. According to Falcone, other large or strategic investors received similar favorable treatment, and there was no quid pro quo.


In Depth

JOBS Act Propels Real-Estate Crowdfunding Platform

Oct 21 2014 | 2:57am ET

If D.J. Paul were a real estate development, he would be described as “multi-use...

Lifestyle

Strippers Accused Of Robbing Hedge-Fund Manager Face Jail

Oct 20 2014 | 9:20am ET

A group of alleged stripper-thieves—whose victims include a hedge-fund manager...

Guest Contributor

PAAMCO: European Equity Exposure - Challenging Year, But All is Not Lost

Oct 16 2014 | 4:12am ET

European equity hedge fund managers have had a tough time so far this year. The...

 

Videos

Editor's Note

    Must Attend Hedge Fund Charity Events For October

    Sep 30 2014 | 9:29am ET

    The crisp Autumnal days of October are upon us, and so are a few of the hedge fund industry’s favorite charitable events. If you have never been to Rocktoberfest, well, you are missing out. And for a quieter evening of sipping and socializing, stop by HFC’s Wine Soiree. Read more…

 

Futures Magazine

October 2014 Cover

Deeply flawed risk benchmark

Most traders agree that proper risk management is the key to successful trading. However, many traders depend on the deeply flawed measure of standard deviation as a benchmark of risk. Here we put it ...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.