Falcone agrees to industry ban in new SEC settlement

Mon Aug 19, 2013 6:49pm EDT
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By Emily Flitter

NEW YORK (Reuters) - Hedge fund manager Philip Falcone agreed to a five-year ban from the financial industry and will admit wrongdoing to settle charges by the U.S. Securities and Exchange Commission that he improperly used money from his hedge fund and unfairly favored some of his investors, the SEC announced on Monday.

The ban would put at least a temporary end to Falcone's controversial career of managing investor money, which was notable for a dramatic rise and fall during and soon after the financial crisis. But it would not prevent him from serving as a director or officer of a public company.

The new settlement agreement, which involves Falcone and his hedge fund Harbinger Capital, comes after the Commission rejected an earlier proposal because it was too lenient, lacking any admission of wrongdoing or a full industry ban. The new agreement also appeared to be the first to require a defendant to admit wrongdoing since new SEC Chairman Mary Jo White announced a much tougher policy that would require such admissions more often.

The agreement must still be approved by a federal judge.

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

Falcone, 51, who made a hugely successful bet against the subprime mortgage market before getting hit by steep losses from a failed wireless startup, LightSquared Inc, said in a statement he was "pleased" to reach a settlement.

"I believe putting these issues behind me now is the best course of action for me and our investors," he said.

His fund Harbinger Capital, which once boasted assets under management of $26 billion, fell to around $3 billion earlier this year. The fund's current size could not immediately be ascertained.   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