Fund manager Falcone's star dims with tentative SEC settlement
Philip Falcone's fall from hedge fund stardom deepened on Thursday when a public company he controls disclosed that the billionaire investor had reached a preliminary settlement with U.S. securities regulators stemming from a probe into market manipulation.
Falcone and his hedge fund, Harbinger Capital Partners, have agreed to pay $18 million to settle two lawsuits filed by the U.S. Securities and Exchange Commission, according to a filing by Harbinger Group Inc, a publicly traded investment company where Falcone is chairman and chief executive officer.
While the dollar amount is relatively small, the deal would require him to return money to his hedge fund investors and effectively prohibit him from starting a new hedge fund for the next two years. It would, however, permit Falcone to remain CEO of the Harbinger Group.
A federal judge and the SEC commissioners must still approve the settlement.
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 repaid the loan to the fund.
Falcone did not immediately respond to a request for comment. The SEC declined to comment.
As part of the settlement agreement Falcone will be barred for two years from associating with broker-dealers and investment advisers, with the exception of the nine investment advisors managing Harbinger's hedge funds.
(Reporting by Emily Flitter, with additional reporting by Jonathan Stempel; editing by Matthew Goldstein and Leslie Gevirtz)