Philip Falcone, CEO and chairman of Harbinger Capital Partners LLC, has been banned from running an insurance company in New York for seven years just as Harbinger Capital subsidiary Fidelity and Guaranty Life is planning a $100 million IPO, reports Leslie Scism for The Wall Street Journal.

Philip Falcone

Falcone’s settlement with SEC

Falcone settled two suits with the Securities and Exchange Commission in August, admitting that he had used a $113 million loan from Harbinger Capital fund to pay his taxes at a time when investors weren’t allowed to withdraw their own money. In addition to an $18 million fine, Falcone was banned from acting as an investment adviser for five years.

The decision to ban Falcone from operating insurance company follows from the SEC decision which revealed “serious issues related to Mr. Falcone’s fitness to control the management, operations, and policyholder funds of a New York insurance company,” said New York Department of Financial Services Superintendent Benjamin M. Lawsky.

Neither banning prevents Falcone from continuing as CEO and chair of Harbinger, but it does mean he must restrict his role in multiple subsidiaries.

“As CEO and Chairman of Harbinger Group, my focus has been on finding investment opportunities, such as Fidelity Guaranty & Life, that will produce long-term value for our investors. That will not change. I have not been involved in the day-to-day management of FG&L or its investment decisions, and I will not be in the future,” Falcone said in a statement.

But it’s not just the daily operations that Falcone has to stay away from. According to Lawsky, Falcone is prohibited from “exercising direct or indirect control over the management, policies, operations, and investment funds” of the insurance companies. Not even having “indirect control over management” is a serious barrier for a CEO.

The decisions also happen amid growing concerns about insurance companies that are owned by hedge funds. Lawsky and his counterparts in other states are considering new rules for such situations, similar to the ones that apply to private equity funds and investment firms that own insurance companies.

“It is vital to ensure that those who operate insurance companies will always put retirees and policyholders first and act with the utmost integrity,” said Lawsky.