Falcone settlement marks first under new SEC policy
The SEC, under new management, has shown it can deliver on its promise to stiffen penalties for wrongdoing.
The commission forced hedge fund manager Philip Falcone to admit wrongdoing and banned him from working in the securities industry for a minimum of five years in a civil settlement for using money from his fund, Harbinger Capital Partners, to settle his personal tax bill and engaging in a short squeeze of a Canadian corporate bond.
The agreement marks the first time the SEC has forced somebody to admit to wrongdoing in a civil settlement. Mary Jo White, who became the chairman of the SEC earlier this year, had stated that she intended to start demanding admissions of wrongdoing as part of SEC settlements.
‘Falcone and Harbinger engaged in serious misconduct that harmed investors, and their admissions leave no doubt that they violated the federal securities laws,’ Andrew Ceresney, co-director of the SEC’s division of enforcement, says in a press release. ‘Falcone must now pay a heavy price for his misconduct by surrendering millions of dollars and being barred from the hedge fund industry.’
The SEC says that, in settlement papers filed in court, Falcone admitted to borrowing $113.2 mn at a low interest rate to pay his personal taxes at a time when other investors were barred from requesting redemptions. Both Falcone and Harbinger also admitted to granting favorable redemption terms to certain large investors, the SEC says.
Falcone was also obliged to admit to buying all outstanding bonds from a Canadian company after hearing rumors that a financial services firm was shorting the bonds and encouraging its clients to do so. Falcone then demanded that the financial services firm settle its outstanding transactions and deliver the bonds it owed, even as none were available. The bonds more than doubled in price.
The agreement comes after the SEC rejected an earlier proposed settlement that would have banned Falcone from the securities industry for two years, instead of five, and required no admission of wrongdoing by either Falcone or Harbinger.
