The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against hedge fund manager Philip A. Falcone, and his firm, Harbinger Capital Partners.
Falcone, at one time a hugely successful fund manager, maintains his innocence and will fight the charges.
The SEC alleges that Falcone improperly took a loan from Harbinger to pay for personal expenses, and he gave preferential treatment to large investors. In addition, the regulator claims that Falcone attempted to manipulate prices of certain bonds and stocks.
Falcone made billions betting against subprime mortgages a few years ago. He has recently been in the headlines, as many of his investors have demanded their money back. The SEC claims that Harbinger gave certain investors redemption offers while denied others. In addition, one of Harbinger’s biggest investments—telecommunications company LightSquared—recently filed for bankruptcy.
The SEC also said that Falcone took a $113.2 million loan from a Harbinger fund to pay taxes. The loan was made from a fund from which Falcone prohibited redemptions.
“Clients and market participants alike were victimized as Falcone unscrupulously used fund assets to pay his personal taxes, manipulated the market for certain bonds, favored some clients at the expense of others, and violated trading rules intended to prohibit manipulative short sales,” said the SEC’s Robert Khuzami, in a statement.
The SEC also said that Falcone took market positions in certain distressed bonds to punish investors betting against him by making large enough trades to affect their prices.
In addition, the SEC charged Harbinger’s former Chief Operating Officer Peter Jenson with aiding in certain schemes.
Falcone has maintained that he is innocent of wrongdoing. “The notion that Mr. Falcone committed a fraud in connection with the loan from a Harbinger fund is unsupportable,” Falcone’s lawyers wrote, according to a NY Times report.
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