FILE - In this Thursday, Nov. 13, 2008, file photo, Philip Falcone testifies on Capitol Hill in Washington. Billionaire hedge fund manager Philip Falcone and his firm have agreed on Thursday, May 9, 2013, to pay $18 million to settle civil fraud charges that he used fund money to pay his taxes and favored some clients over others. (AP Photo/Kevin Wolf, File)
Thursday, May 09, 2013 7:55 pm
Hedge fund manager Falcone to settle fraud case
By MARCY GORDONAP Business Writer
Falcone would be barred for two years from working as an investment adviser or broker under the agreement in principle between the Securities and Exchange Commission, Falcone and Harbinger Capital Partners, according to a filing Thursday by Harbinger Group Inc. That is a publicly traded company of which Falcone is chairman and CEO.
Under the settlement, Falcone and Harbinger Capital would neither admit nor deny the SEC's allegations.
Falcone, a prominent figure on Wall Street, could continue to own New York-based Harbinger Capital. But it would be overseen by an independent monitor. Falcone would not be able to make investments for the fund or raise money for it.
The agreement must be formally approved by a majority of the SEC commissioners. The SEC sued Falcone and Harbinger Capital in June.
Harbinger is best known for investing in distressed companies. In 2007, it bet against bonds that were used to finance risky subprime mortgages and posted huge gains when the bonds fell in value. But the firm began to struggle in 2008, and it tightened its rules about when and how much money investors could withdraw.
The SEC alleged in its lawsuit that from 2006 through early 2008, Falcone manipulated the market for high-yield, high-risk bonds issued by a company called Maax Holdings Inc. Using fund money, Falcone bought many of the bonds to shrink the supply on the market and drive up prices, the SEC asserted.
The SEC also said Falcone and Harbinger secretly gave some key investors in the fund the right to cash out of their holdings. In exchange, the favored investors gave Falcone and the fund permission to bar the other investors from being able to cash out, according to the SEC. It said that arrangement was hidden from Harbinger's directors.
Last year, the SEC reached a settlement with Harbert Management Corp., a firm with ties to Harbinger. The SEC said Harbert had the power to control Falcone and Harbinger but failed to stop the bond manipulation scheme.
Harbert and two related firms agreed to pay a $1 million civil fine. They, too, neither admitted nor denied wrongdoing.
Harbinger Group's consumer products division includes Spectrum Brands, the company behind products such as Rayovac batteries and George Foreman grills.