Falcone Settles Fraud Charges, Accepts Limited Ban

May 9 2013 | 2:02pm ET

Harbinger Capital Management and its founder, Philip Falcone, have struck a deal with the Securities and Exchange Commission that will see Falcone barred from the securities industry—but with enough caveats to allow him to continue to run the hedge fund and its permanent capital vehicle.

Under the agreement in principle, Harbinger and Falcone will pay $18 million to settle fraud charges; Falcone himself will cover $4 million of the total. And Falcone accepted the industry ban he's fought for months.

But the SEC made major concessions, as well. The most important is that the temporary ban amounts primarily to a prohibition on raising new capital for the two years—an unlikely enough event in any case, given Harbinger's troubles in recent years. The bar does not cover Harbinger's nine investment advisers, and Falcone will be permitted to continue to run the firm, as well as remain chairman and CEO of the publicly-traded permanent capital vehicle, Harbinger Group, although he cannot be involved in making new acquisitions. In addition, Harbinger Capital will get a monitor to ensure that it is complying with the settlement, which still requires the approval of the SEC's commissioners and a court.

The SEC also did not include a standard injunction against further fraud violations, although the deal does allow Harbinger and Falcone to settle without admitting or denying wrongdoing.

Falcone and Harbinger did agree to "take all actions reasonably necessary to expeditiously satisfy all received redemption requests of investors;" indeed, The New York Times reports that Falcone's incredibly limited ban was designed to allow him to liquidate Harbinger's hedge funds over time, rather than in a fire-sale that would harm investors, although the settlement specifies that the redemptions could lead to the "orderly disposition of Harbinger Capital fund assets."

The SEC sued Harbinger and Falcone in June, accusing them of four separate frauds, notably favoring large investors, an illegal short squeeze and over Falcone's taking of a $113.2 million loan from his hedge funds to pay a tax bill.


In Depth

Humble in Hofstra...One Debate an Election Can Make

Sep 26 2016 | 10:20am ET

Tonight's U.S. Presidential debate, infamously coined the “Humbling in Hofstra...

Lifestyle

Vortic: Reimagining the Custom Wristwatch

Sep 27 2016 | 7:24pm ET

American watch manufacturer Vortic, which started out restoring antique pocket watch...

Guest Contributor

Hedge Fund Marketing – Tips for Your Initial Sales Meeting

Sep 29 2016 | 5:46pm ET

There are two main goals a hedge fund should have for an initial in-person sales...