Harbert Management Agrees To Settle New York Tax Case For $40M

Apr 20 2017 | 12:59am ET

The state of New York has reached at $40 million settlement with Harbert Management to resolve claims the fund sponsor failed to pay state and city income taxes on hedge fund performance fees.

The settlement is the largest of its kind for New York, State Attorney General Eric Schneiderman said in a statement, and centers around Alabama-based Harbert’s role as a fund sponsor for Philip Falcone’s prominent hedge fund firm Harbinger Capital Partners. 

Performance fee income from 2004 to 2009, which included some of Harbinger’s best years, was essentially taxed in Alabama, the AG said, despite the requirement to apportion at least some of it to New York where Falcone operated. Alabama has a lower tax rate than New York.

The original action originated with an as-yet unidentified whistleblower who filed under New York’s False Claims Act. Under the terms of the Act, the whistleblower is entitled to $8.8 million of the settlement. 

In settling with New York, Harbert strenuously denied any wrongdoing, noting it had filed in good faith and in reliance on external tax advisors, according to Bloomberg.

Falcone, already barred from the industry until at least next year for unrelated matters as part of a settlement with U.S. regulators, was not party to the arrangement.

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