SEC, N.Y. investigate loan to Chisholm's Falcone

  • Article by: STEVE ALEXANDER , Star Tribune
  • Updated: November 15, 2010 - 9:48 PM

A $113 million loan to Philip Falcone, billionaire Wall Street investor from Minnesota, comes under scrutiny.

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Philip Falcone

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For Minnesota-born Wall Street investor Philip Falcone, it appears that everything is up in the air.

His futuristic wireless communications venture has just launched its first satellite, but he's also reportedly at the center of criminal and civil investigations into whether his hedge fund, Harbinger Capital Partners of New York, promptly reported that it gave him a $113 million personal loan.

Quoting unnamed sources, the Wall Street Journal reported that the Securities and Exchange Commission and the U.S. Attorney's office in Manhattan are investigating whether Harbinger, a prominent national hedge fund, misled investors by failing to disclose the loan to Falcone in a timely way.

Harbinger on Monday referred all calls for Falcone, a native of Chisholm, Minn., to its public relations firm, which declined to comment.

Falcone, 48, a one-time Minnesota high school hockey player who went on to play hockey at Harvard and later made billions on Wall Street, told the New York Times last week that he needed the loan to pay off an unexpectedly high tax bill. It was a far cry from his childhood on Minnesota's Iron Range, where he was the youngest of nine children that were supported by his mother's 80-cent-an-hour job at the local shirt factory.

But Falcone told the Wall Street Journal that the personal loan was made properly and was disclosed in Harbinger's financial statements for 2009. Falcone also said that he has repaid more than $70 million of the loan; the balance is due in 2014. Falcone is said to have about $2 billion of his own money invested in Harbinger, the Journal reported.

Falcone also has been a minority owner and board member of the Minnesota Wild hockey team's parent company, Minnesota Sports and Entertainment, since 2008, said spokesman Bill Robertson. The team won't comment on whether it has any concerns that Falcone's involvement in a financial investigation might affect his continuing part-ownership of the Wild, Robertson said.

Playing favorites?

The Journal also reported that Harbinger, a prominent national hedge fund, is being investigated over whether it had improperly allowed some investors, but not others, to withdraw their money from the fund after a financial crisis. Falcone has denied that the firm gave preferential treatment to some investors at the expense of others.

The investigations come at a time when the value of Harbinger's assets has dropped from $26 billion in 2008 to $9 billion today. The decline was partly the result of investors pulling out profits and partly due to the firm's financial losses. Harbinger's wealth grew when it made investments that essentially bet on a future decline in the value of bonds backed by subprime mortgages. That did occur, causing the real estate crisis whose effects persist today.

The Journal also reported that Harbinger's main fund has dropped about 15 percent in value this year, and that clients including Goldman Sachs Group and Blackstone Group have put in withdrawal requests.

Falcone's troubles also are occurring just as a high-risk firm that Harbinger owns, Lightsquared, announced the successful launch on Sunday of SkyTerra 1, its first commercial satellite for a planned global voice and data network that will utilize a combination of satellites and ground-based wireless towers.

Steve Alexander • 612-673-4553

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