SEC Settlement Stops Short Of Demanding That Phil Falcone Not Commit Fraud Any More

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They're not gratuitously cruel after all:

The settlement deal, the people said, is also notable for something that it did not include: a common provision that prohibits defendants from committing future violations with fraudulent intent. The lack of a so-called fraud injunction is an unusual victory for the target of an S.E.C. action.

I imagine that was heavily negotiated? Other than that here's what's going on with Phil these days:

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. ... The settlement was made without the HCP Parties admitting or denying any of the SEC's allegations. ...

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 [Harbinger Group] 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. ...

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.

So ... my initial reaction, like DealBook's, is that this is a pretty good outcome for Falcone? A two year ban on running outside money seems ideally calculated to let people forget about all the borrowing money from gated funds to pay his taxes stuff; memories are, after all, short.

And during those two years he gets to keep his hand in the investing game by, for instance, running his personal money - which this settlement would appear to reduce by roughly 33 basis points1 - and making investment decisions for his publicly traded conglomerate, which also seems to be allowed.2 Also I guess by running his hedge funds in wind-down which, given past practice, could take a while.

Falcone Agrees to 2-Year Ban in Deal With S.E.C. [DealBook]
Harbinger Group 10Q [EDGAR]

1.DealBook says Falcone will personally pay $4mm of the penalty, vs. a $1.2bn net worth.

2.From that conglomerate's 10-Q:

Harbinger Group Inc. ("HGI" and, collectively with its respective subsidiaries, the "Company") is a diversified holding company, the outstanding common stock of which is 74.6% owned, collectively, by Harbinger Capital Partners .... HGI is focused on obtaining controlling equity stakes in companies that operate across a diversified set of industries and growing acquired businesses.

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. ... 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.

So he can invest for the holding company, but not for its asset-management subsidiaries.

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