Watchdog threatens action against Democrat donor's hedge fund
Prominent Obama supporter Philip Falcone receives 'Wells notices' from Securities and Exchange Commission
US authorities are threatening legal action against Harbinger Capital Partners, the hedge fund founded by the billionaire and prominent Democrat donor Philip Falcone.
The firm announced on Friday that it faces charges that it broke securities law violations and said it plans to halt investor withdrawals at year end.
Falcone, 49, made a fortune in 2007 after betting that there would be a credit crisis as other financial players continued to pour money into subprime loans and other soon-to-be toxic assets. But his luck appears to have turned. Three years ago Harbinger's assets peaked at $26bn; they have since slumped to $5.7bn.
Falcone and other Harbinger employees have received what are known as Wells notices from top financial watchdog the Securities and Exchange Commission that the company is under investigation, Harbinger said in regulatory filing. "Harbinger and its affiliates are disappointed that the staff issued Wells notices," the firm said. The firm intends "to vigorously defend against it".
Harbinger announced in April that the government was also looking into possible market manipulation in its trading of the debt securities of an undisclosed firm from 2006 and 2008. The company has also lost huge sums on an investment inLightSquared, a telecommunications company that has come under fire from regulators and lawmakers.
LightSquared hopes to build a national wireless network using airwave rights originally set aside for satellite phones. But critics claim that the network interferes with global-positioning devices and the firm has yet to convince the Federal Communications Commission that it won't hobble GPS-enabled devices.
The row has proved an embarrassment to the White House. Falcone has been a generous donor to the Democrats and President Barack Obama was an early investor in LightSquared. Republicans have accused the Obama administration of favoring the company, a charge the White House denies.
Harbinger is also being investigated by the US attorney's office and the SEC over a $113m loan Falcone took from one of his funds to pay personal taxes.
A self-made billionaire, Falcone is the youngest of the nine children. His father was a utility superintendent and his mother worked at the local shirt factory. Harbinger Capital made billions of dollars in profits thanks to bets on the decline of the housing market. Falcone's well-timed bet earned him a $1.7bn paycheck in 2007, according to Absolute Return magazine.
But the company's recent woes have spooked investors. In the summer, Bloomberg reported that clients were attempting to withdraw at least $1bn from Harbinger's main hedge fund.
So Obama gets tons of money from a man who bet against mortgages. Invests in a company whose technology is considered a threat to GPS operations both civilian and military and we're supposed to look the other way?
What kind of madness is it when only the top executive is able to borrow huge sums from the company for personal purposes? Even if he paid it back it is not the business of a company to be a piggy bank for certain employees and not all.
Last Updated:4:07 AM, December 10, 2011
Posted:11:11 PM, December 9, 2011
Hedge-fund billionaire Phil Falcone got pummeled with a double dose of bad news yesterday — a one-two punch that could knock the legs out from under his already limping career.
The 49-year-old’s $3 billion investment in LightSquared was slammed late yesterday when it emerged that the 4G wireless venture failed a major government test that is expected to severely cripple its chances of getting off the ground this year.
That blow was preceded by the news that Falcone and two high-ranking employees of his $5.7 billion hedge fund, Harbinger Capital, were served with Wells Notices by the Securities and Exchange Commission for alleged securities violations. Such notices offer warning from SEC staffers that they plan to recommend that the agency proceed with a civil suit.
Meanwhile, investors were told they would be left holding the bag amid the storm. In announcing the SEC action, Harbinger said it plans to cut off withdrawals by the end of the month, leaving investors with no time to get their money back before the gates come crashing down.
“He’s done, as far as raising money ever again from outside investors,” said one Harbinger investor, who asked not to be named.
“If someone wants to sue him, I’ll tag along,” the investor said of Falcone, who’s worth an estimated $2.2 billion and whose name can be seen on a placard gracing the posh High Line park in Chelsea.
The stage is nearly set for a spectacular fall from grace for Falcone, who rose to hedge-fund stardom in 2008 following his brilliant bets against toxic mortgages, which resulted in gains of over 100 percent that year.
Falcone’s performance has been on and off ever since. But other things have irked investors — including the $113 million loan he took from his funds to pay his personal taxes. The money has since been paid back.
Investors were also up in arms when Falcone invested $2.9 billion of the fund’s assets into LightSquared. They feared the investment could block them from getting their money out.
Indeed, Falcone has recently been giving LightSquared stock to hedge-fund investors who redeem their shares.
The Reston, Va., venture, which aims to build out a new super-fast, nationwide wireless network, was to be Falcone’s saving grace.
But the project has been hit with complaints from farmers and the military that it interferes with global positioning systems. LightSquared has countered that the interference is minimal.
A draft of a report due next week, however, was leaked yesterday to Bloomberg, revealing that LightSquared interfered with up to 75 percent of GPS devices.
That could severely dampen the chances that LightSquared will get government approval.
Martin Harriman, a LightSquared executive, blasted the leak as a “breach” of protocol and said the conclusions drawn from the leaked report are “patently false” because they don’t take into consideration LightSquared’s “mitigation proposal.”
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