Goodbye Phil, We Hardly Knew Ye (But We Sure Knew Your Wife)

Tyler Durden's picture

The one-two punch is complete: first Goldman pulls it capital, now the SEC and the US Attorney's office are investigating Harbinger. Is this the proverbial curtains call for Phil Falcone? Accusations are one thing. Accusations accompanied by major LPs pulling capital are usually the last thing.

From Bloomberg:

Harbinger Capital Partners is being investigated by the Securities and Exchange Commission and the U.S. Attorney’s office over a $113 million loan to founder Philip Falcone and possible preferential treatment of some investors, according to two people with knowledge of the probe.

Falcone, 48, took the loan from the Harbinger Capital Partners Special Situations Fund in October 2009 to pay personal taxes, Bloomberg Markets Magazine reported in September. At the time, investors were barred from exiting the fund because it had assets tied up in the bankruptcy of Lehman Brothers Holdings Inc. The New York-based firm disclosed the loan in the fund’s March 12, 2010, financial statements.

“The loan has been a topic of discussion since it was disclosed in March,” Falcone said yesterday in an e-mail. “It was documented and audited by outside accountants and legal advisers and was done in accordance with our documents. As for the preferential treatment for certain clients, that is completely and utterly untrue.”

He declined to comment on whether the SEC and the U.S. Attorney in Manhattan were investigating the firm. The probes were reported yesterday by the Wall Street Journal.

The firm’s main Harbinger Capital Partners Fund tumbled 15 percent through Oct. 15, according to investors who asked not to be named because the information is private. As of September, about 90 percent of the fund’s $3.4 billion in net assets was tied up in wireless-telecommunications investments.

Goldman Sachs

Goldman Sachs Group Inc. plans to pull $120 million from the fund, people familiar with the firm’s decision said earlier this week. Investors in Harbinger’s core fund are limited to taking out 25 percent of their redemption request per quarter, so that a full withdrawal is spread out over a year. Goldman will get back $30 million in January, and receive its final $30 million payment in January 2012.

At the end of 2008, Goldman had $1 billion invested in two Harbinger funds, according to the people, who asked not to be identified because the funds are private.

Another investor in Harbinger’s core fund, the New York State Common Retirement Fund, has asked to redeem $41 million. Dennis Tompkins , a spokesman for the state pension system, declined to comment on the reason the pension fund is withdrawing the money.

Dealbook chimes in:

Mr. Falcone said that he and his advisers had considered redeeming money from the fund, but that he was advised against doing so because it would have placed a deferred tax burden on the fund’s other investors.

He said he needed the loan to pay off a tax bill far higher than he or his tax planners had estimated.

“I typically keep all my money in the fund,” he said “I didn’t have $100 million lying around.”

That's too bad - post 18 years of no prenup, pretty soon there may be nothing lying around. Although who knows, at least Lisa now has a 'budding' business. Perhaps the joke will be on her after all...

As we presented two days ago, here are Harbinger's top stock holdings. Shorting these would seem like a very prudent idea ahead of upcoming liquidations.

And some more from the inimitable Lisa Falcone: