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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.

Related

Phil Falcone Reveals Genius New Plan (Update)

LightSquared is a wireless venture that seeks to create “convenient connectivity for all." But those of you who've been keeping up know that to one man, it's so much more. That man, of course, being hedge fund manager Phil Falcone. LightSquared is his dream. His baby. His world. His everything. And, because he has poured his heart, soul, and firm's money into LightSquared, it is also the thing that stands to make or break Harbinger Capital. Success will mean billions for Falcone and his investors. Failure will mean Wilbur Falcone selling her eggs to a barren couple willing to pay top dollar for the DNA of a blue-eyed classically trained singer with an IQ of 150 and legs like Tina Turner. Unfortunately, things have not been going so well for LightSquared. The yachting community worries that GPS interference caused by LS will result in boats getting lost at sea. The National Oceanic and Atmospheric Administration says LightSquared“may degrade precision services that track hurricanes, guide farmers and help build flood defenses.” The FAA put out a study that estimates LS could “cost 794 lives in aviation accidents over 10 years with disruptions to satellite-aided navigation.” The only person defending the thing (besides Phil) is Karl Rove. Meanwhile, the SEC wants to see Falcone banned from the industry, Bloomberg News has put a reporter on the "Phil Falcone Pit Stains" beat, and his investors, for the most part, despise him for petty reasons that no rational adults would ever get upset about, like borrowing $113 million from a gated fund in order to pay personal taxes and tying up much of their capital in a side project building walkie-talkies that might not pan out on account of the growing opinion that it might kill a few people. At this time, a lesser man might decide to cut his losses and/or look within and say "Maybe my investors aren't the problem, maybe I'm the problem." Phil Falcone is no such man. He's figured out a few things and what they boil down to is that his impatient, pissy investors are what is standing in the way of LightSquared soaring, which it will, when it is ready. And if those pricks won't agree to stick around for an investment time horizon of inifinty, he'll find people who will. Harbinger Capital Partners' Philip Falcone, speaking at the SALT hedge-fund conference Wednesday in Las Vegas, hinted at an initial public offering, CNBC's Kate Kelly reported. "Harbinger is actually considering getting more permanent capital," Falcone said, according to Kelly, who said it suggests a potential IPO. "I'm moving toward a more permanent capital vehicle. We need to focus more on control," Falcone said, according to Kelly. No one said going from not having the cash to cover taxes to $25 billion was going to be easy. Harbinger's Falcone hints at potential IPO -CNBC [MarketWatch] Update: Falcone claims to have no idea what CNBC is talking about (asking Fox Business, "What the fuck would I IPO?")