As part of the SEC's consent order with Harbinger's Phil Falcone, we learned that in addition to the previously well-known stuff Falcone was engaging in (using the fund as his taxpaying piggybank, giving preferential gating terms to "friends and family", etc), perhaps what really scuttled the once legendary hedge fund manager is what ended up being an outright war with Goldman, when back in 2006 Harbinger tried to not only take the other side of a short bet put on by Goldman, but literally squeezed Goldman and its clients into absolutely misery with the result millions in profit to Falcone and unknown losses to Goldie. And as one knows, you never fight Goldman and win, without ultimately losing everything.
SEC SAYS FALCONE CONSENTS TO BAN FROM ASSOCIATION WITH ANY BROKER, DEALER, INVESTMENT ADVISER, OTHER ENTITIES, WITH RIGHT TO REAPPLY AFTER FIVE YEARS
Moments ago, embattled hedge fund manager Phil Faclone, whose Harbinger Capital seven years ago was more profitable than Federal Reserve Capital Onshore Fund LP, and where every analyst and trader wanted to work, at least until they decided to work for Paulson 3 years later (oops), just settled with the SEC for the plethora of alleged financial wrongdoing that has troubled him in the past four years, and primarily for misuse of client funds such as using client cash to pay his own taxes, in a move that effectively ends his career in not only the hedge fund worlds, but in finance as well. It is unclear if Falcone's prenup-free marriage is also over as a result: we expect a statement from Lisa's PR group shortly.
It would appear that (apart from Tesla, for now) that any thing related to electric cars is going up in flames. From Fisker's fubar (and blowing all that hard-earned government funding) and Chevy's Volt dysphoria to A-123 Systems (the Lithium-Ion battery-maker) and now Coda - which Yahoo Finance notes was among an emerging crop of California startups seeking to build emission-free electric cars three years ago. After selling just 100 of its $37,250 five-passenger vehicles, Coda filed Chapter 11 today taking a few well-known investors with it. On the bright side, the government was not involved (from what we can tell), but on the even brighter side, none other than former US Treasury Secretary Hank Paulson was among those burned by the company going up in flames (as was Harbinger's Phil Falcone).
Departing a socialist regime to avoid paying taxes is not just a French thing anymore: Bloomberg reports that one of the most famous hedge fund managers of the late 2000s, if not so much recently, John "Boricua" Paulson "is exploring a move to Puerto Rico, where a new law would eliminate taxes on gains from the $9.5 billion he has invested in his own hedge funds, according to four people who have spoken to him about a possible relocation." In moving to Puerto Rico, Paulson would merely be the latest person to avoid paying any taxes associated with Paulson & Company: virtually every other investor in Paulson's hedge funds also has no taxes to worry about, for a far simpler reason: taxes are generally incurred on profits, not three years in a row of relentless losses.
Things appear to be going from worse to worserer as the failure of Light-Squared appears to have been a 'harbinger' of pain to come for the man who was 188th richest in the US. As Bloomberg notes:
- *SEC SAID TO AUTHORIZE LAWSUIT AGAINST HARBINGER'S PHIL FALCONE
- *SEC SAID TO PLAN TO SUE FALCONE OVER TAX LOAN, GOLDMAN DEAL
- *SEC MAY FILE LAWSUIT AGAINST FALCONE AS EARLY AS THIS WEEK
- *FALCONE LAWSUIT MAY INCLUDE CLAIM OF MARKET MANIPULATION
Back in August 2010 we asked: "Is Phil Falcone's Mega Bet On SkyTerra Going To Be His Last?", turns out it was. Soon the only betting Phil may be doing is whether or not the soap slips in the common shower bathroom, or how many divorce attorneys might be waiting on patrol outside his multi-million dollar mansions; but we only have one thing to add now: "Got Pre-Nup?"
The fall of the man, whom everyone wanted to work for back in 2006, is now complete.
- LIGHTSQUARED, FAILED WIRELESS VENTURE, FILES FOR BANKRUPTCY
- LIGHTSQUARED 74 PERCENT-OWNED BY FALCONE’S HARBINGER CAPITAL
- LIGHTSQUARED’S PLANNED HIGH-SPEED NETWORK INTERFERED WITH GPS
However, the best news for federal and New York tax returns and state employment, is that one or more divorce lawyers will be filthy, filthy rich in the next 12-36 months. Which is in now way related to any of the above. At all.
And so the legend of the once invincible "hedge fund titan" Phil Falcone, often the target of mockery and ridicule on the pages of Zero Hedge, ends, after his now irrelevant hedge fund which peaked in the tens of billions back in 2006/2007 is forced to borrow a secured loan from Jefferies at a 15% rate. The reason - the firm's all in gamble in satellite communication company LightSquared, which is also pretty much finished following today's announcement by airline carriers who said that LightSquared would "ruin US aviation." That, and pretty much everything else that Falcone invested in in the past 5 years. Check and mate. This also answers our question from August 2010 "Is Phil Falcone's Mega Bet On [LightSquared] Going To Be His Last?" It is.
Just because Solyndra was not enough of a humiliation for the president, not to mention MF Global where inquiring minds are wondering when the president and vice-president will refund any and all campaign donations received by Jon Comminglerzine, here comes the next public fiasco for the administration, as the broader public shifts its attention to LightSquared by way of owner Harbinger capital, and its flamboyant head (and wife) - Phil Falcone. As has been just released in an SEC filing, Harbinger has received a Wells Notice from the SEC. Now in a time long, long ago, or about three years ago, before market criminality and manipulation became wholly endorsed by the US government, getting a Wells Notice was a death sentence for any hedge fund. Alas, it still is: "The Wells Notices state that the staff intends to recommend or is considering recommending that the Commission file civil injunctive actions against HCP, Harbinger Capital Partners Offshore Manager, LLC, Harbinger Capital Partners Special Situations GP, LLC, Mr. Falcone, Mr. Asali, and Ms. Roger alleging violations of the federal securities laws’ anti-fraud provisions in connection with matters previously disclosed and an additional matter regarding the circumstances and disclosure related to agreements with certain fund investors." And whether the Wells Notice is merely an inquiry into Falcone previous shady hedge fund-dipping practices described here, or a preamble to a full blown public spectacle-cum-humiliation on Harbinger's LightSquared remains to be seen. One thing is certain: Mrs Falcone will milk the newly found notoriety to its full extend, prenup firmly in gold-braceleted hand.
One of the Christmas day stories getting little attention was the explosion of the rocket carrying what would have been the largest Indian telecommunications satellite. As BBC explains: "An Indian space rocket carrying the country's largest communications satellite has exploded shortly after launch. Live television coverage showed the rocket vanishing in a plume of smoke moments after lift-off from Sriharikota near the city of Chennai (Madras). The Indian Space Reserach Organisation said it believed the explosion was caused by an electronic failure." The satellite that would have been launched is the GSAT-5P: "GSAT-5P was a 2,310-kilogram (5,100 lb) spacecraft, which was built by the Indian Space Research Organisation based around the I-2K satellite bus. It was equipped with 36 transponders operating in the G/H band of the NATO-defined spectrum, or the C band of the older IEEE spectrum. Twelve of the transponders operated on extended frequencies within the band. GSAT-5P was expected to operate for at least 12 years, and would have been placed at a longitude of 55 degrees east." A video of the explosion is attached below. There is no evidence of foul play or less than gross incompetence at this point. It is also unclear if AIG was the company insuring the satellite and/or rocket. Lastly, to the best of our knowledge, this is one satellite incident that has not cost Phil Falcone hundreds of millions.
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.
More Hot Water For Phil Falcone? Company Once Linked To Kennedy Assassination Reveals Informal Investigation Of Harbinger TradesSubmitted by Tyler Durden on 11/18/2010 17:07 -0500
As if the recent scandals surrounding Harbinger's redemptions, his money withdrawals from a locked up fund, and his pledging of artwork to procure a loan for a mysterious capital need were not enough, next we read courtesy of Matt Goldstein that Phil Falcone is also facing an informal probe in the fund's "investments and trading in securities of particular issuers." What is very curious is that Harbinger Group was once the very infamous Zapata Corp, which has been implicated in everything from the Kennedy assassination, to the Bay of Pigs, to Watergate, to Iran Contra! While we will ignore any possible link between Falcone and the Bushes (not to mention the CIA), we will point out that Phil Falcone is chairman and CEO of the current iteration of Zapata, and that Harbinger Inc and Harbinger Capital Partners are intimately tied. And this is where the real problems arise.
One of the biggest hedge fund "fall from grace" stories last week, was that of Phil Falcone fund Harbinger, which has seen major redemptions from key LPs including Goldman Sachs and the New York State pension fund after his withdrawal of capital from a locked up fund made headlines (having made headlines previously in March, although with a 5 month delay). Today, via Reuters we learn that Mrs and Mr. Lisa Marie Falcone continue to have key major cash needs, after posting some of their "fine art" as collateral for a secured five-year loan from Bank of America public records show. And while "the two-page document does not specify the amount the couple borrowed, the terms of the financing package or exactly what the "certain items of fine art" posted as collateral are" neither is the "uses of funds" disclosed, the amount is hardly paltry and is surely needed for more than mere renovations of the couple's $49 million town house, which just happens to be Bob Gucciones's Fifth Avenue former stomping ground. Regardless, ongoing scrutiny and an unwelcome public spotlight will make Harbinger's future ever more problematic: already the fund has lost nearly 75% of its value, peaking at $26 billion in 2008, and now down to just $7 billion. As the fund is down 15% YTD, the only money coming in is from the 2% management fee: a paltry $140 million which has to cover overhead and expenses, and a far cry from the billions Falcone made a few years ago.
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.
Phil Falcone, who rode the leverage wave into prosperity has fallen on hard times: according to a recent HSBC report, his fund was down 10.7% YTD, which has forced many people to reevaluate whether his "strategy" was anything more than gobbling up second liens and hoping for a cheap flip or for profitable debt-for-equity conversions. Now that the economy has moved back into a depression, his recent results may be far more indicative of his endogenous alpha generation "ability" than riding the levered beta wave of 2005-2007. Yet that did not stop him from pocketing $825 million in 2009, making him the 10th best paid manager according to Absolute Return + Alpha. What is even more troublesome for LPs is his latest megabet on SkyTerra Communications, now known as LightSquared. As Matt Goldstein at Reuters reports, "roughly $3 billion or 40 percent of Harbinger’s assets are tied-up in
LightSquared, say people familiar with the funds. Formerly known as
SkyTerra Communications, the telecom company is the hedge fund’s single
largest and most concentrated bet." While such a concentrated bet is appropriate for a distressed, event-driven fund, many are grumbling that should this latest venture prove as "successful" as his other recent ones, then Harbinger may soon become a footnote in the rich tapestry of blown up hedge funds. "We are being paid to be more skeptical these days and we are quite
frankly concerned by what he seems to be doing,” said a representative
for an institutional investor, as Goldstein reports. Yet having amassed a multi-billion personal empire that also includes Bob Guccione's former house on 5th Avenue, we somehow think that Phil will be good no matter how Harbinger's LPs end up doing.