Kevin Wolf, Associated Press
Phil Falcone, Harbinger settle with SEC: $18 million, 5-year ban
- Article by: ALEXANDRA STEVENSON
- New York Times
- August 20, 2013 - 7:40 AM
Wall Street’s regulator sent a message on Monday that it was now taking a more aggressive stance on securities settlements as it extracted its first admission of wrongdoing under a new policy.
The Securities and Exchange Commission said that hedge fund manager Philip Falcone had agreed to admit wrongdoing to settle market manipulation accusations. Falcone, a native of Chisholm, Minn., who is a part owner of the Minnesota Wild, is also barred from the securities industry for at least five years as a result of the settlement.
The admission of wrongdoing by Falcone and his firm, Harbinger Capital Partners, marks a departure from many recent SEC settlements. The government more typically allows financial firms and employees to neither admit nor deny guilt. Falcone and Harbinger will also pay $18 million.
The deal comes a month after the commission had in a rare move overruled its own enforcement staff to reject a settlement struck with Falcone and Harbinger.
That original agreement had called for a two-year ban from raising new capital and no admission of wrongdoing. It did not even include an injunction against committing fraud in the future — language common to nearly every single securities settlement.
The original settlement terms had irritated the SEC’s new chairwoman, Mary Jo White, people briefed on the matter said, and frustrated many others within the agency who saw that deal as too lax.
The new, tougher terms reflect a wider policy change that White outlined this year, aiming to shift the burden of admission of guilt onto the defendant, overturning a longstanding policy of allowing defendants to “neither admit nor deny” wrongdoing.
The agreement on Monday sets a potential precedent for the regulator, which is busy with investigations involving JPMorgan Chase and the hedge fund SAC Capital Advisors.
Falcone left Minnesota after high school, attended Harvard University and made a fortune on Wall Street. A hockey player and fan since his youth, Falcone bought a minority interest in the Minnesota Wild professional hockey team a few years ago. But his legal troubles with Harbinger have not affected his personal investments.
Falcone was accused in June 2012 of manipulating the market by improperly using $113 million in fund assets to pay his own taxes and to favor some customer redemption requests secretly over others, among other things. His actions “read like the final exam in a graduate school course in how to operate a hedge fund unlawfully,” federal regulators said at the time.
In the settlement, Falcone agreed he had acted “recklessly” with regard to several market transactions, including granting favorable redemption and liquidity terms to big investors, and trying to manipulate bond markets.
He will be required to pay more than $11.5 million of his own money in disgorgement and penalty fines while his Harbinger entities will have to pay $6.5 million. He will not be allowed to run his hedge fund, but he will be able to liquidate any funds in it. Harbinger Capital has just under $3 billion in assets under management.
© 2013 Star Tribune