Phil Falcone Done: To Pay $18 Million, Admit Guilt, Agree To 5 Year Bar

Tyler Durden's picture

Once upon a time Harbinger was the most desirable hedge funds to work for. 10 years later, it, and its head Phil Falcone, have just been effectively shut down.

  • SEC: HARBINGER CAPITAL, FALCONE TO PAY $18M IN SETTLEMENT
  • SEC SAYS HARBINGER, FALCONE ADMIT TO CONDUCTING IMPROPER SHORT SQUEEZE IN BONDS ISSUED BY A CANADIAN MANUFACTURING COMPANY
  • SEC
    SAYS FALCONE CONSENTS TO BAN FROM ASSOCIATION WITH ANY BROKER, DEALER,
    INVESTMENT ADVISER, OTHER ENTITIES, WITH RIGHT TO REAPPLY AFTER FIVE
    YEARS
  • SEC SAYS FALCONE ADMITTED TO IMPROPERLY BORROWING $113.2M
  • SEC: FALCONE ADMITTED TO RETALIATTION VS FINL SERVICE FIRM

In other rumored news, Phil's wife Lisa Maria to join cast of the Real (non-prenupped) Ex-Wives of New York (Hedge Funders) in 5...4...3...

So from this...

to this?

More from the SEC:

Among the set of facts that Falcone and Harbinger admitted to in settlement papers filed with the court:

  • Falcone improperly borrowed $113.2 million from the Harbinger Capital Partners Special Situations Fund (SSF) at an interest rate less than SSF was paying to borrow money, to pay his personal tax obligation, at a time when Falcone had barred other SSF investors from making redemptions, and did not disclose the loan to investors for approximately five months.
  • Falcone and Harbinger granted favorable redemption and liquidity terms to certain large investors in HCP Fund I, and did not disclose certain of these arrangements to the fund’s board of directors and the other fund investors.
  • During the summer of 2006, Falcone heard rumors that a Financial Services Firm was shorting the bonds of the Canadian manufacturer, and encouraging its customers to do the same.
  • In September and October 2006, Falcone retaliated against the Financial Services Firm for shorting the bonds by causing the Harbinger funds to purchase all of the remaining outstanding bonds in the open market.
  • Falcone and the other Defendants then demanded that the Financial Services Firm settle its outstanding transactions in the bonds and deliver the bonds that it owed.  Defendants did not disclose at the time that it would be virtually impossible for the Financial Services Firm to acquire any bonds to deliver, as nearly the entire supply was locked up in the Harbinger funds’ custodial account and the Harbinger funds were not offering them for sale.
  • Due to Falcone’s and the other Defendants’ improper interference with the normal interplay of supply and demand in the bonds, the bonds more than doubled in price during this period.

Full SEC "Consent" letter below: