Pension Calls Harbinger-Leucadia Deals An Abuse Of Power

Mar 28 2014 | 10:03am ET

While he fights in one courtroom to maintain control of his wireless internet venture, Harbinger Capital Partners founder Philip Falcone has been accused of mismanaging that business' parent in another.

A Massachusetts public pension fund accused Falcone of wasting the assets of his permanent capital vehicle, Harbinger Group, in order to maintain control of it. The Haverhill Retirement System alleged in a lawsuit this week that Falcone handed two board seats to Leucadia National Corp. in exchange for a $400 million cash infusion, which allowed Harbinger Group to buy back shares from Falcone's hedge fund.

Harbinger Capital is returning outside capital after Falcone accepted a five-year ban from the hedge fund industry to settle Securities and Exchange Commission fraud charges. The sanction does not cover Falcone's work at Harbinger Group, where he is CEO.

According to Haverhill's complaint, filed in Delaware Chancery Court, Harbinger Group's deals with Leucadia—a second came last week, when the company agreed to buy $253 million in preferred securities—threaten to drown out shareholders, such as the pension.

Falcone should have given up some of the seats he controlled on the board to give Leucadia representation, the pension said.

"The expansion of the board to add two Leucadia appointees reduced the percentage of independent HGI directors to a mere 30% of board seats, diluting public stockholder representation without any corresponding benefit to the company or the public stockholders themselves," it complained.

"Falcone effectively used company assets to bail himself out of a personal financial crisis and maintain de facto control over HGI despite a shrinking equity stake in the company," the complaint alleges. The moves amount to an abuse of power, which the board failing to rein Falcone in, Haverill said.


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