Phillip Falcone reached a preliminary deal with federal regulators that would disallow him from financial activities for the next two years. This was a fast fall for a man who was seen as having the savviest mind in the hedge fund industry.
Falcone’s company, Harbinger Group, disclosed that the hedge fund Harbinger Capital Partner agreed to pay $18 million as settlement to the two civil lawsuits filed by the Securities and Exchange Commission. The SEC claimed Falcone of having a lavish lifestyle while working to prevent clients from withdrawing their investments.
The SEC said that at one instance, Falcone got a $113.2 million loan from one of his hedge funds to pay his personal taxes. At the same time, most of the fund’s investors can’t get hold of their money. The agency also claimed that Falcone manipulated the bond prices of Maax, a manufacturer of bathroom fixtures.
The deal prevents Falcone from vital hedge fund activities for two years. These included increasing new funds or making new deals via his firm. The agreement doesn’t require him to plead guilty. He will remain the chief executive of Harbinger Group.
Falcone has to pay $4 million in fines, which is a small portion of his net worth. Harbinger Capital is set to pay the rest of the fine. Falcone is known for betting against subprime mortgages right before the loans led to a credit crisis that threatened the entire financial system.
Critics said that Falcone used his wealth to get allies in Washington. He contributed to both parties during elections. He pushed LightSquared in Washington, which proposed utilizing satellites to make a cellular network that could go against Verizon and AT&T’s network.
Falcone’s LightSquare proposal was ill-fated. The Federal Communications Commission initially supported the idea but it went against it after other federal agencies complained that the technology would interfere with airplane systems and GPS devices.