SEC Charges Hedge Fund Billionaire With Fraud

by Christopher Freeburn | June 28, 2012 9:39 am

2012 hasn’t been a good year for Philip Falcone.

First, the FCC denied a waver to his $5 billion wireless start-up Lightsquared, forcing it into bankruptcy, and now the government is accusing him of fraud[1].

Yesterday, the SEC sued Falcone and his hedge fund, Harbinger Capital Partners, alleging that the billionaire improperly borrowed $113 million from his firm to pay his personal taxes and that he allowed some investors to withdraw their money from his funds as Lehman Brothers collapsed, while shutting out other investors who took steep losses as a result, Reuters noted.

Falcone maintains that the loan was approved by the fund’s lawyers and that he has repaid it since. He insists he will fight the charges.

Harbinger Capital Partners is also accused of securities fraud by the SEC.

Word of the charges elicited comments from Senator Charles Grassley, with whom Falcone clashed publicly over Lightsquared’s failed bid to get a federal waver for satellite wireless spectrum[2].

Grassley upbraided the FCC for almost approving the request of “someone accused by our nation’s financial regulator of having ‘victimized’ ‘clients and market participants alike.” Lightsquared would have competed with the nation’s largest wireless carriers, including Verizon (NYSE:VZ[3]), Sprint (NYSE:S[4]) and AT&T (NYSE:T[5]), but the planned use of satellite spectrum could have interfered with the GPS system prompting sharp opposition from shipping and navigation businesses like FedEx (NYSE:FDX[6]), United Parcel Service (NYSE:UPS[7])¬†and Garmin (NASDAQ:GRMN[8]).

Lightsquared was Harbinger Capital’s largest single investment. It’s failure, combined with the SEC charges, led analysts to question the one-time hedge fund king’s future in the industry.

At its height, Harbinger Capital had as much as $26 billion under management. That has fallen to just $3 billion.

Endnotes:
  1. now the government is accusing him of fraud: http://in.reuters.com/article/2012/06/28/sec-falcone-update-idINL2E8HRDM620120628
  2. failed bid to get a federal waver for satellite wireless spectrum: http://investorplace.com/2012/05/lightsquared-seeks-bankruptcy-protection/
  3. VZ: http://studio-5.financialcontent.com/investplace/quote?Symbol=VZ
  4. S: http://studio-5.financialcontent.com/investplace/quote?Symbol=S
  5. T: http://studio-5.financialcontent.com/investplace/quote?Symbol=T
  6. FDX: http://studio-5.financialcontent.com/investplace/quote?Symbol=FDX
  7. UPS: http://studio-5.financialcontent.com/investplace/quote?Symbol=UPS
  8. GRMN: http://studio-5.financialcontent.com/investplace/quote?Symbol=GRMN

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