Feds sideline billionaire Falcone from fund business

Thu May 9, 2013 5:38pm EDT
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By Emily Flitter

NEW YORK (Reuters) - One-time star money manager Philip Falcone will be barred from starting another hedge fund for two years as he winds down his existing fund and returns money to investors, under a preliminary deal with securities regulators to settle fraud and other charges that was made public on Thursday.

The agreement by Falcone and his hedge fund, Harbinger Capital Partners, to settle two lawsuits brought by the U.S. Securities and Exchange Commission was disclosed in a filing by Harbinger Group Inc, the publicly traded investment company of which Falcone is chairman and chief executive. The settlement would also include the payment of $18 million.

While the dollar amount involved in the preliminary settlement is relatively small, the ban on new fundraising means Falcone will have to continue winding down his hedge fund.

It would, however, would permit Falcone to remain CEO of Harbinger Group, which has been acquiring stakes in insurance-related businesses. His hedge fund is one of the largest investors in Harbinger Group.

The agreement would bring to a close one of several major problems for the beleaguered money manager. Falcone, 50, a high-profile money manager who has not been shy about flaunting his success, began to see his reputation unravel last year after his big bet on wireless telecom company LightSquared went bad, with the company forced to file for bankruptcy. Harbinger Capital owned 96 percent of LightSquared.

In its lawsuits, the SEC accused Falcone of market manipulation, giving preferential treatment to certain investors and borrowing cash from his own fund to pay his personal taxes.

The government asserted that at the height of the financial crisis, when many of the fund's assets were tied up in the collapse of Lehman Brothers, Falcone let select investors get out while denying that opportunity to others.

The SEC also claimed Falcone illegally loaned himself $113 million from the fund to pay his taxes, leaving investors unable to access their own money. Falcone eventually repaid the loan.   Continued...

Philip Falcone, chief executive officer and chief investment officer for Harbinger Capital Partners, participates in a panel discussion during the Skybridge Alternatives (SALT) Conference in Las Vegas, Nevada May, 9, 2012. REUTERS/Steve Marcus