Phil Falcone's Harbinger Group Says He's Reached A Settlement With The SEC
Last summer, the SEC charged Falcone and his Harbinger Capital Partners with securities fraud.
The regulatory agency alleged that Falcone and his fund engaged in "illicit conduct that included misappropriation of client assets, market manipulation and betraying clients," the release said.
According to the 10-Q filing, it looks like he didn't have to admit or deny the SEC allegations.
Falcone agreed to a two-year ban as an adviser and to pay an $18 million penalty, the filing states. He gets to remain CEO and chairman of the board.
The settlement also has to be approved.
From the 10-Q: (emphasis ours)
On April 22, 2013, Harbinger Capital, Harbinger Capital Partners Offshore Manager, L.L.C., Harbinger Capital Partners Special Situations GP, L.L.C., and Mr. Falcone (collectively, the “HCP Parties”), advised the Company that they had reached an agreement in principle with the enforcement staff of the United States Securities and Exchange Commission (“SEC”) regarding the settlement of all matters related to the two civil actions previously filed by the SEC against the HCP Parties in the United States District Court for the Southern District of New York.These civil actions were previously disclosed in our prior filings with the SEC. The settlement was made without the HCP Parties admitting or denying any of the SEC's allegations. The settlement is subject to approval by the Commissioners of the SEC and the court. There can be no assurance that the Commissioners or the court will approve the settlement on the terms described below.
Under the settlement, Mr. Falcone may continue to own and control our Company and serve as its Chief Executive Officer and Chairman of the board. Our Company and our subsidiaries (including, among others, Spectrum Brands Holdings, Inc., Fidelity & Guaranty Life Holdings, Inc. Five Island Asset Management LLC (“Five Island”), Salus Capital Partners LLC (“Salus”), Salus Capital Partners II LLC (“Salus II”, and together with Salus and Five Island, the “Subsidiary Advisers”), EXCO/HGI GP, LLC or Zap.Com Corporation or any of their respective subsidiaries) are not parties to the settlement and the duties and obligations described herein are the duties and obligations of the HCP Parties and not our Company or our subsidiaries. As previously disclosed, none of the SEC's actions were brought against our Company or any of our subsidiaries and the subject matter of those actions did not include any conduct involving, by, or on behalf of our Company or any of our subsidiaries.
Under the terms of the settlement, the HCP Parties, without admitting or denying any of the SEC's allegations, would consent to the entry of a final judgment that, subject to certain exceptions with respect to the Subsidiary Advisers and Harbinger Capital entities described below, bars and enjoins Mr. Falcone for a period of two years (after which Mr. Falcone may seek the consent of the SEC to have the bar and injunction lifted) from acting as or being an associated person of any “broker,” “dealer,” “investment adviser,” “municipal securities dealer,” “municipal adviser,” “transfer agent,” or “nationally recognized statistical rating organization,” as those terms are defined in Section 3 of the Securities Exchange Act of 1934 and Section 202 of the Investment Advisers Act of 1940 (such specified entities, collectively, the “Specified Entities”). The settlement does not limit Mr. Falcone from owning or controlling our Company or from serving as an officer or director of our Company, including continuing in his role as our Chief Executive Officer and Chairman of our board. Our Company has three indirect subsidiaries, Five Island, Salus, and Salus II, which are “investment advisers” as such term is defined in Section 202 of the Investment Advisers Act of 1940. The settlement does not limit our Company's ability to own and control any of its subsidiaries (including the Subsidiary Advisers), nor does it limit our Company and our subsidiaries (including the Subsidiary Advisers) from pursuing their business strategies. However, during the period of the bar, Mr. Falcone may not, other than as a result of his ownership and control of Company, engage in any actions that would result in him being an associated person of the Subsidiary Advisers, including, but not limited to, directly or indirectly: (i) performing any management functions at the Subsidiary Advisers; or (ii) making any recommendations regarding the purchase or sale of securities by the Subsidiary Advisers. In addition, during the period of the bar, in light of Mr. Falcone's role as our Chief Executive Officer and Chairman of our board, the Company and its subsidiaries are limited in their ability to acquire other Specified Entities.
During the period of the bar, Mr. Falcone may remain associated with Harbinger Capital and other Harbinger Capital entities, provided that, during such time, Mr. Falcone's association will be limited as set forth in the settlement. The HCP Parties must take all actions reasonably necessary to expeditiously satisfy all received redemption requests of investors in the Harbinger Capital funds, which may include the orderly disposition of Harbinger Capital fund assets. In addition, during the bar period, the HCP Parties and certain Harbinger Capital entities may not raise new capital or make capital calls from existing investors. The settlement requires the HCP Parties to pay disgorgement, prejudgment interest, and civil penalties totaling approximately $18 million. In addition, for the duration of the bar, the activities of the HCP Parties at the Harbinger Capital funds, including those described in this paragraph, will be subject to the oversight of an independent monitor.
At the time of the SEC charges, Kevin Roose and Jessica Pressler at Daily Intel asked Falcone about them he responded via email "Piece of cake" adding, "It's not like I'm having a heart transplant."