For Philip Falcone, the price of hanging on to his dream of building a wireless broadband network is a new, tougher settlement with U.S. regulators that requires him to admit wrongdoing and bans him from the hedge-fund industry that made him a billionaire.
Falcone will be barred from the industry for at least five years, up from two years under a proposed deal rejected by the U.S. Securities and Exchange Commission in July, the regulator said yesterday. The earlier settlement didn’t force him or Harbinger Capital Partners LLC, his $3 billion firm, to admit any wrongdoing. In return, the agency is allowing him to continue running Harbinger Group Inc., a publicly traded company, as well as LightSquared Inc., a venture that is seeking to build a wireless broadband network.
The SEC accused Falcone, who rose to fame after betting against the U.S. housing market in 2006, of improperly borrowing money from his fund to pay his personal taxes and said he gave preferential treatment to some of his investors in returning their capital. The regulator also accused Falcone of engaging in a short squeeze of bonds held by a Canadian manufacturer.
“Falcone and Harbinger engaged in serious misconduct that harmed investors, and their admissions leave no doubt that they violated the federal securities laws,” Andrew Ceresney, co- director of the SEC’s enforcement division, said in yesterday’s statement. “Falcone must now pay a heavy price for his misconduct by surrendering millions of dollars and being barred from the hedge-fund industry.”
The bar from the securities industry will allow Falcone to liquidate his hedge funds under the supervision of an independent monitor, the SEC said. He and his New York-based firm will pay an $18 million fine, the same amount as called for in the original settlement.
That deal, proposed in May, was rejected two months later by the commission because it was too lenient, two people with knowledge of the matter said at the time.
In June, two months after being sworn in as SEC chairman, Mary Jo White said the agency would depart from a decades-old practice of settling cases without requiring defendants to admit to wrongdoing. The decision to seek such admissions would “turn on how much harm has been done to investors, how egregious is the fraud,” she said.
“I am pleased that we were able to reach a settlement to resolve these matters with the SEC,” Falcone said yesterday in an e-mailed statement. “I believe putting these issues behind me now is the best course of action for me and our investors. It will allow me to continue to focus on my permanent capital vehicles and maximizing the value of LightSquared for all stakeholders.”