Philip Falcone and Harbinger Capital Consent to the SEC's Findings and Sanctions (with Lofchie Comment)

The SEC announced that hedge fund adviser, Philip Falcone, and his advisory firm, Harbinger Capital Partners, agreed to a settlement requiring them to pay over $18 million and admit wrongdoing. Among the charges to which Falcone accepted guilt were (i) improper personal dealings with the fund, (ii) favoring certain fund investors over others, and (iii) conducting a short squeeze in bonds. Falcone agreed to be barred from the securities industry for at least five years. The SEC had filed enforcement actions in June 2012 alleging, among other allegations, that Falcone improperly used $113 million in fund assets to pay his personal taxes.

Lofchie Comment: Two aspects of the settlement appear notable: (i) Falcone was forced to "admit the facts" of the SEC's charges; (ii) the charge of conducting a "short squeeze." As to the short squeeze charge, even though Falcone may have been acting in a manner that was improper (the charges involve buying up more than 100% of an issue of bonds and then squeezing the shorts), it is not entirely clear what laws or rules Falcone actually violated in this regard, or whether the sanction has implications for other situations in which there is a a short squeeze.

See: Consent of Falcone; Final Consent Judgment; SEC Press Release. See also: New York-based Hedge Fund Adviser Philip A. Falcone and His Advisory Firm, Harbinger Capital Partners LLC, Charged with Securities Fraud (SEC Press Release) (June 28, 2012).