Back in 2009, hedge fund manager Phil Falcone came up with an idea considered genius only if you take an elastic view of securities laws, which Falcone certainly did (does?). Upon being notified by his personal accountants that he owed the government more than $100 million in state and federal taxes, and turning down the suggestion to borrow against various assets including his Manhattan townhouses, artwork, interest in the Minnesota Wild, and an estate on St. Bart's, Falcone decided to just borrow the money from a gated investor fund, despite being told in no uncertain terms it was a bad idea by Harbinger's "longstanding" outside counsel. Investors in that fund turned out not to like the idea very much, with the SEC feeling similarly. But while the regulator felt 5 years (plus an $18 million fine) was enough time for Falcone to really think about what he'd done-- a punishment Falcone described as a blessing in disguise--, the New York Department of Financial Services felt otherwise.

Billionaire Philip Falcone was banned by New York state’s top financial watchdog from being an officer or director of Fidelity & Guaranty Life for seven years for using his hedge funds’ money for his personal taxes. Falcone, 51, is also barred from “direct or indirect control over the management, policies, operations” and investment funds of Fidelity’s New York unit, the state’s Department of Financial Services said today in a statement. The ban also applies to employees of his hedge fund, Harbinger Capital Partners LLC, which controls the insurance company. The ban stems from Falcone’s accord in August with the U.S. Securities and Exchange Commission, which had sued him over the same allegations and banned him from the securities industry for five years. In that case, Falcone admitted to improperly borrowing $113.2 million from the fund and giving preferential treatment to some clients when returning their money.

The wrongdoing exposes “serious issues related to Mr. Falcone’s fitness to control the management, operations, and policyholder funds of a New York insurance company,” Lawsky said in the statement. The statement didn’t say what specific role, if any, Falcone had at Fidelity.

Falcone Banned at Fidelity for 7 Years by N.Y.’s Lawsky [Bloomberg]
New York Bans Harbinger's Falcone From Insurance Role [WSJ]
Related: Phil Falcone’s Ban From The Securities Industry Not So Much A Ban As It Is A Blessing, Says Phil Falcone