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.


In Depth

Q&A: Brevan Howard’s Charlotte Valeur Talks Strategy

Sep 18 2014 | 11:18am ET

Charlotte Valeur chairs the board of Brevan Howard Credit Catalysts, an LSE listed...

Lifestyle

Griffin Donates $1M To Rauner's Illinois Gov. Campaign

Sep 22 2014 | 9:29am ET

Hedge fund billionaire Kenneth Griffin definitely has a dog in this fight. The Citadel...

Guest Contributor

Appraisal Ratio Key To Evaluating Hedge Funds And Other New Investments

Sep 29 2014 | 3:07pm ET

As a former finance professor Peter Hecht experiences heartburn every time he hears...

 

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

September 2014 Cover

The profitable power of confluence

The trading world is inundated with strategies and techniques. Here’s one way traders can get a handle on information overload.

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.