Falcone Barred From Hedge Fund Industry In New SEC Deal

Aug 20 2013 | 1:00pm ET

Harbinger Capital Management founder Philip Falcone has agreed to a new deal with the Securities and Exchange Commission that will bar him from managing his hedge fund but that will allow him to continue running both his listed investment vehicle and his bankrupt wireless Internet venture.

Less than a month after the Securities and Exchange Commission rejected the original settlement negotiated with Falcone, the two sides reached a new agreement with much tougher sanctions. Falcone and Harbinger will still pay $18 million, but Falcone's ban from the securities industry has been extended from two to five years—and given teeth. Where the original settlement amounted to a ban on raising new capital for two years, the new deal will bar Falcone from managing his fund for five years, though he will be able to take part in the liquidation of the fund under the supervision of an independent monitor.

Falcone has also had to admit wrongdoing as part of the new settlement.

The SEC sued Falcone and Harbinger last year, accusing the hedge fund manager of taking an improper loan from the firm to pay his taxes, of granting Goldman Sachs preferential redemption treatment and of market manipulation.

"Falcone and Harbinger engaged in serious misconduct that harmed investors, and their admissions leave no doubt that they violated the federal securities laws," SEC enforcement co-chief Andrew Ceresney said. "Falcone must now pay a heavy price for his misconduct by surrendering millions of dollars and being barred from the hedge-fund industry."

But that heavy price does not include the surrender of Falcone's control over Harbinger Group, the publicly-traded permanent-capital vehicle Falcone set up in 2010, or over LightSquared, the troubled wireless venture that Falcone sank much of his investors' capital into. When the SEC rejected the original settlement deal, it was in part because it did not ban Falcone from serving as a director of a public company. But the SEC eventually allowed that loophole to stand, reasoning that his violations were committed in his role as an investment adviser and not as a director.

Falcone is currently fighting to retain control over LightSquared, which filed for bankruptcy last year after its network was refused clearance by federal regulators due to concerns about interference with global positioning systems.

"I am pleased that we were able to reach a settlement to resolve these matters with the SEC," Falcone said. "I believe putting these issues behind me now is the best course of action for me and our investors. It will allow me to continue to focus on my permanent capital vehicles and maximizing the value of LightSquared for all stakeholders.


In Depth

Fundraising for Mid-Sized PE Funds: Should You Use a Registered B/D?

Dec 6 2016 | 7:18pm ET

When does a fund sponsor need to use a registered broker/dealer when raising capital...

Lifestyle

Trump Attends 'Villains and Heroes' Costume Party Dressed As...Himself

Dec 5 2016 | 11:16pm ET

U.S. President-elect Donald Trump attended a "Villains and Heroes" costume party...

Guest Contributor

A Hard Look At Your ‘Soft’ Hedge Fund Marketing Information

Dec 8 2016 | 9:03pm ET

Conventional wisdom holds that due diligence examines quantitative as well as qualitative...

 

From the current issue of

Since the inception of Modern Trader, a core editorial theme has centered on the wisdom and power of crowds. Editorial emphasis has focused on companies and projects engaged in the collection and analysis of information. 

AVAILABLE NOW at BARNES & NOBLE

NEWSTAND LOCATOR