Philip Falcone, the billionaire hedge-fund manager sued by U.S. regulators over claims he improperly used client money to pay taxes, agreed to be barred from acting as an investment adviser in a proposed settlement.
In addition to the two-year ban, Falcone’s hedge fund Harbinger Capital Partners LLC would agree to pay about $18 million in disgorgement, interest and penalties to resolve Securities and Exchange Commission claims filed in June, the company said today in a public filing. The agreement is subject to approval by SEC commissioners and a U.S. court.
The proposed settlement doesn’t bar Falcone from serving as an officer or director of a company, which means he can continue as chief executive officer and chairman of Harbinger, according to the filing. Still, during the two-year bar from the securities industry, Falcone can’t perform any management functions of Harbinger’s subsidiary advisers or make any recommendations about the purchase or sale of securities.
“Mr. Falcone’s and Harbinger Capital’s reputation and access to acquisition candidates is important to the execution of our business strategy,” the company said in the filing. “While we expect that Mr. Falcone will devote a portion of his time to our business, he is not required to commit his full time to our affairs and will allocate his time between our operations and his other commitments at his discretion.”
Robin Roger, the general counsel for Harbinger Capital Partners, declined to comment when reached today by telephone. John Nester, an SEC spokesman, declined to comment.
The SEC accused Falcone of misappropriating client assets after he took a $113 million loan from his special situations fund to pay personal taxes when about 60 percent of the fund’s investors had unfulfilled redemption requests. While he knew in April 2009 that he would have a tax bill in the tens of millions of dollars, he continued to spend money on renovations of a $49 million townhouse once owned by Penthouse magazine publisher Bob Guccione.
Falcone also favored certain investors and manipulated bond prices, according to the SEC.
The Harbinger funds named in the SEC’s actions must “take all actions reasonably necessary” to satisfy all redemption requests from investors, the company said. During the two-year bar, certain funds may not raise new capital or make capital calls from existing investors.
