Breaking News Bar
updated: 5/9/2013 1:21 PM

Hedge fund manager Falcone to settle fraud case

hello
Success - Article sent! close
  • Associated Press/2008 file photoBillionaire hedge fund manager Philip Falcone and his firm have agreed to pay $18 million to settle civil fraud charges.

      Associated Press/2008 file photoBillionaire hedge fund manager Philip Falcone and his firm have agreed to pay $18 million to settle civil fraud charges.

 
Associated Press

WASHINGTON -- Billionaire hedge fund manager Philip Falcone and his firm have agreed to pay $18 million to settle civil fraud charges that he used fund money to pay his taxes and favored some clients over others.

Falcone would be barred for two years from working as an investment adviser or broker under the agreement in principle between the Securities and Exchange Commission and Falcone and Harbinger Capital Partners, the firm said in a filing Thursday.

Order Reprint Print Article
 
Interested in reusing this article?
Custom reprints are a powerful and strategic way to share your article with customers, employees and prospects.
The YGS Group provides digital and printed reprint services for Daily Herald. Complete the form to the right and a reprint consultant will contact you to discuss how you can reuse this article.
Need more information about reprints? Visit our Reprints Section for more details.

Contact information ( * required )

Success - request sent close

Under the settlement, Falcone and Harbinger would neither admit nor deny the SEC's allegations.

Falcone, a prominent figure on Wall Street, could continue to own New York-based Harbinger Capital. But it would be overseen by an independent monitor. Falcone couldn't make investments for the fund or raise money for it.

The agreement must be formally approved by a majority of the SEC commissioners. The SEC had sued Falcone and Harbinger in June.

In 2007, Harbinger bet against bonds that were used to finance risky subprime mortgages and posted huge gains when the bonds fell in value. But the firm began to struggle in 2008, and it tightened its rules about when and how much money investors could withdraw.

The SEC alleged in its lawsuit that from 2006 through early 2008, Falcone manipulated the market for high-yield, high-risk bonds issued by a company called Maax Holdings Inc. Using fund money, Falcone bought many of the bonds to shrink the supply on the market and drive up prices, the SEC asserted.

The SEC also said Falcone and Harbinger secretly gave some key investors in the fund the right to cash out of their holdings. In exchange, the favored investors gave Falcone and the fund permission to bar the other investors from being able to cash out, according to the SEC. It said that arrangement was hidden from Harbinger's directors.

Last year, the SEC reached a settlement with Harbert Management Corp., a firm with ties to Harbinger. The SEC said Harbert had the power to control Falcone and Harbinger but failed to stop the bond manipulation scheme.

Harbert and two related firms agreed to pay a $1 million civil fine. They, too, neither admitted nor denied wrongdoing.

Share this page
Comments ()
Guidelines: Keep it civil and on topic; no profanity, vulgarity, slurs or personal attacks. People who harass others or joke about tragedies will be blocked. If a comment violates these standards or our terms of service, click the X in the upper right corner of the comment box. To find our more, read our FAQ.