The Securities and Exchange Commission has negotiated a preliminary settlement with one of the hedge fund industry’s fallen stars.
Phillip Falcone and his firm Harbinger Capital were sued by federal regulators over accusations that Falcone used client money for personal reasons while restricting investors’ ability to withdraw money from the firm. Under the terms of the proposed settlement Falcone will pay $4 million in fines and Harbinger Capital will pay $18 million. Falcone will also be prohibited from engaging in investment activities for two years, while Harbinger Capital must return investor funds and accept independent oversight, the Washington Post noted.
Falcone gained prominence as a hedge fund manager by taking positions against subprime mortgage debt on the eve of the financial crisis. Leveraging his wealth to cultivate political ties in Washington, Falcone then tried to obtain wireless spectrum licenses for Lightsquared, a cellular network venture using satellite wireless spectrum.
However, after heavy lobbying by existing wireless carriers, the Federal Communications Commission did not approve the spectrum for cellular use and Lightsquared ultimately filed for bankruptcy.
The settlement must still be approved by a federal court.