Tags: sec | lawsuit | harbinger | falcone

SEC Said to Plan Lawsuit Against Harbinger’s Falcone

Tuesday, 26 Jun 2012 05:44 PM

Philip Falcone, the billionaire founder of Harbinger Capital Partners LLC, faces a lawsuit from U.S. regulators as soon as this week over claims he improperly borrowed client money from his hedge fund to pay his taxes and gave preferential treatment to Goldman Sachs Group Inc., according to two people familiar with the matter.

Falcone, 49, may also face a market manipulation claim related to trading in bonds of MAAX Holdings Inc., said the people, who asked not to be identified because the matter isn’t public. The Securities and Exchange Commission voted to authorize enforcement staff to file the case, the people said.

“Any allegations by the SEC of improprieties by Mr. Falcone or Harbinger are neither supported by the facts or the law,” said Matthew Dontzin, an attorney for Falcone. “Should a lawsuit be brought,it will be contested vigorously.”

The SEC action comes less than two months after LightSquared Inc., Harbinger Capital’s biggest investment, filed for bankruptcy after the Federal Communications Commission said it would withdraw preliminary approval to build out a nationwide high-speed wireless network. Harbinger, which managed $26 billion in mid-2008, oversaw $3 billion as of April after losses and clients withdrawals.

Florence Harmon, a spokeswoman for the SEC, declined to comment.

‘Highly Uncommon’

Falcone has previously said that he sought the advice of outside counsel over the $113 million loan he took from his Special Situations fund to pay personal taxes. At the time, clients were barred from taking money out of the fund.

“It’s highly uncommon for a manager or sponsor of the fund to borrow money from the fund,” said Ron Geffner, a partner at Sadis & Goldberg LLP in New York. It “is wrought with conflicts of interest.”

Falcone has said in the past that allegations of preferential treatment of some clients were “completely and utterly untrue.” Harbinger’s offering documents allow it to give certain investors different terms than other clients, according to a person who has seen the documents.

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Tuesday, 26 Jun 2012 05:44 PM
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