Phil Falcone Sued Over Stock Swap At Harbinger Group

Tyler Durden's picture

About a month ago we observed some rather unpleasant disclosures in the public vehicle of Phil Falcone's publicly traded entity, Harbinger Group, f/k/a the infamous Zapata Corp of George H.W. Bush fame. Back then we observed that "Harbinger Group., Inc appears to be a shell for an
investment company with $141 million of cash and short-term investments
on the books, and no operations, and is currently being assimilated by
Falcone in an elaborate scheme for his Spectrum Brands shares, which
would bring his total holding in Zapata from 51.6% to 94%." It is this same company that has now gotten the increasingly more troubled satellite mogul-cum-hedge fund manager in court. Reuters reports that a lawsuit has been filed against Philip Falcone which charges that the investor took advantage of his position in engineering a stock swap between his hedge fund and a small publicly traded company that he also controls.

From Reuters:

Harbinger Group Inc, a holding company with little more than $100 million in cash on its balance sheet, is paying too much for the assets of Spectrum Brands Holdings Inc, which sells pet care products and small appliances like the George Foreman grill, the lawsuit charges.

Falcone already owns the majority of Harbinger Group.

Now he is planning to increase his stake to 94 percent from 51.6 percent by swapping 120 million newly issued shares of Harbinger for about 27.8 million shares of Spectrum Brands, a large holding in his hedge funds.

"HGI is vastly overpaying for the acquisition of assets from its majority and controlling shareholder," according to the suit, which was filed by Harbinger Group investor Alan Kahn in Delaware Chancery Court on Tuesday. Kahn sued Falcone, other directors and Harbinger Group itself.

The key contention in the suit is that Falcone basically took advantage of a fair value disconnect as part of the exchange to sell to himself the balance of the company at a substantial discount:

Contending that the price for the exchange is
unfair, the lawsuit said that Falcone's Harbinger Capital Partners
proposed the exchange when Harbinger Group's "common stock was trading
at roughly a 25 percent discount to its liquid assets."

Sure enough, the defense is already on the scene:

A spokesman for Falcone and Harbinger Group called the suit "meritless" and said the defendants will seek to have it dismissed. "This transaction was reviewed at Harbinger Group by an independent committee of directors advised by outside financial and legal advisors. The conclusion from this process was that the transaction was in the best interests of the shareholders," Jeff Zelkowitz said.

While we are confident that this suit will quietly go away, on the off chance it does not it would be interesting to see what discovery is presented in court, as relates to the blurb from the 10-Q that originally caught our attention, namely the following:

Harbinger Parties and their affiliates routinely cooperate with
governmental and regulatory examinations, information-gathering requests
(including informal requests, subpoenas, and orders seeking documents,
testimony, and other information), and investigations and proceedings
(both formal and informal). The
Harbinger Parties and their affiliates are currently cooperating with
informal investigations with respect to particular investments and
trading in securities of particular issuers.

In light of the recent dragnet against hedge funds, which for now is going nowhere quick, is Harbinger merely yet another of the funds to be soon implicated in the rapidly escalating investigation against expert networks? Then again, judging by the firm's to-date "success" with taking over the satellite communication medium, we are fairly certain that not a whole lot of money was spent by the firm in "expert discussions" over the firm's recent all out onslaught in this most recent, and so far painfully costly, strategic venture.

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plocequ1's picture

The market is up. Merry Christmas.

SteveNYC's picture

I haven't been short this pig in well over a year. Right now, it looks as if the start of '11 may usher in some long-awaited pain for bulls.

Contemplating, contemplating.......

Clapham Junction's picture

What does Pisani think?  Aren't they related?

Cdad's picture


I think Bob heard you.  He is clearly trying for a promotion into the criminal syndicate known as Wall Street....because he just declared that because the volume on the XLF [I told you so here too] was higher then on the Roach Motel [SPY]...means that folks are getting super bullish on bank stocks.

LOL!  LOLOLOL!  I can think of ten other things that means...and none of them have to do whatever with bullishness on bank stocks.  And Bob Pisani has been on that NYSE floor for more than 20 years. 


[Bob, maybe you should just go dig harder on that whole ETF corruption story?  I know it will be hard, especially when they get to the buying and selling of infinity part...but go for that Pulitzer Bob!]

Cdad's picture

No!  I do not believe that a criminal syndicate Wall Street fund manager would do such a thing.  Anyway, with FBI agents popping up everywhere, we could expect one of them to accidentally find at least one banker that did something wrong.  Attention FBI guys....just look for the guys in suits that also are currently wearing hockey helmets, too  ;)

In the meantime, has anyone else noticed how the Blow Horn [CNBC] is suddenly talking a lot about "problems in the ETF industry?"  Coincidence?  I don't think so.

Again, and if people really think about this...our free market capital system cannot be restored until the criminal elements that have been clearly revealed are cleaned up. cannot clean that kind of thing up with a fine.  Criminal bankers need to be removed from the system because.....


SteveNYC's picture

+ Bernanke's bank balance

Problem Is's picture

"Anyway, with FBI agents popping up everywhere, we could expect one of them to accidentally find at least one banker that did something wrong. "

The FBI ARE Jamie & Lloyd's Expert Network...

ATTN: "Empty Suit" Holder... You awake on this one?

dizzyfingers's picture

One wonders why, if there is a greater justice somewhere, they still are walking around.

Steaming_Wookie_Doo's picture

"just look for the guys in suits that also are currently wearing hockey helmets"

I don't get the reference. Maybe wearing a helmet while performing cunnilingus on Blythe Masters...

Cdad's picture


Recently I raised some money in order to acquire some hockey helmets to send to the NYSE for floor traders, criminal syndicate Wall Street bankers [and their analysts] for the purpose of protecting some of them from themselves as those guys are not exactly "the brightest bulb on ye old Christmas tree" if you know what I mean ;)

I'm having a hard time now remembering if it was Steve Grasso that said something or if it was something else that made me worry about those guys enough to raise the money and send those helmets, but anyway, that was the reference.  But between you and me ;) I had the ulterior motive of also helping to "mark" them for FBI guys that seem to be having a really hard time locating criminal syndicate Wall Street bankers, even going out to PA somewhere to round up some guys who I think just ran a website or something, when NY, NY is simply crawling with e' that they stood out a bit more...but shhhhh on that second point.


gwar5's picture

2010 has been an interesting year Tyler, thanks mucho.

Merry Christmas to everybody and don't forget to Bang Dae-Ho for 2011


bob_dabolina's picture

You have now entered into....bong bong bong....the twilight zone.

Atomizer's picture

A bit off topic, this caught my eye.

ICI: Long-Term Mutual Funds Fell $8.48 Bln In Latest Week

So I tapped over to FinCEN.

Chapter X

On March 1, 2011, FinCEN will transfer its regulations from 31 CFR Part 103 to 31 CFR Chapter X as part of an ongoing effort to increase the efficiency and effectiveness of its regulatory oversight. 31 CFR Chapter X is organized by generally applicable regulations and by industry-specific regulations. There have been no substantive changes made to the underlying regulations as a result of this transfer and reorganization. Please note that documents published prior to March 1, 2011 will continue to contain citations to 31 CFR Part 103. Documents published on or after March 1, 2011 will contain citations to 31 CFR Chapter X. To assist with this transition, FinCEN has created a 31 CFR Chapter X general cross-reference index.

Transfer and Reorganization of Bank Secrecy Act Regulations; Final Rule



VeloSpade's picture

Falcone should be sued for allowing his harlem whore of a wife to be seen in public.

Buck Johnson's picture

Falcone is the same idiot that took money out of his fund to pay his own taxes.  Now if your an investor, this should scare you.  If the man doesn't have the money to pay his taxes from his own wealth (which from reports he has all his wealth invested along with the Fund in this satellite company which almost everybody has had trouble trying to make work), then he's using his companies (which in turn their money) money to keep himself afloat.  I hate to say this but Falcone is going to end up broke and penniless.

VeloSpade's picture

Not to mention through Falcone's own admission that all of his wife's "indie" films will likeley all result in losses, but its "okay" for the sake of "art".  LEt this be a lesson - never marry a trashy no class hispanic harlem whore... i.e. Ms. Falcone "The Cunt" Whore.

Paul Bogdanich's picture

You are bold the degree of foolhardiness.  Just like Elliot Spitzer when they have had enough of you they will out you ("Tyler Durden"  the original sin of anyonimity) and damage your brand.