In June of 2012, the Securities and Exchange Commission alleged that Falcone “used fund assets [of $113.2 million] to pay his taxes, conducted an illegal ‘short squeeze’ to manipulate bond prices, secretly favored certain customers at the expense of others, and that Harbinger unlawfully bought equity securities in a public offering, after having sold short the same security during a restricted period.”
Fast forward to May 2013, when Falcone agreed to a settlement with the SEC that would have seen him pay $18 million while unable to work as an investment adviser for two years. That deal was nixed by SEC chairwoman Mary Jo White who believed it was too lenient and forced both sides back to the table.
Clint Carlson's Carlson Capital Double Black Diamond fund returned 3.34% in August net of fees. Following this performance, the fund is up 8.82% year-to-date net, according to a copy of the firm's August investor update, which ValueWalk has been able to review. On a gross basis, the Double Black Diamond fund added 4.55% in August Read More
What resulted was the ever-so-rare case of the SEC demanding that the defendant admit wrongdoing. Under the terms of the deal, Falcone will have to pay a total of $11.5 million of his own money to settle the charges. He will part with a total of $6.5 million in illicit profits and pay $1.01 million in prejudgment interest and $4 million in civil penalties, and also accepted a five-year ban from the securities industry.
The “severity” of that settlement has, in the opinion of one shareholder, forced him down the same path as the one he was on before the ruling. It’s hard to imagine a billionaire not having $18 million somewhere under the figurative cushions in his couch.
The accusation and lawsuit
Haverhill Retirement System, especially, believes that Falcone has gone back to his cheating ways and has publicly accused him of paying his settlement from Harbinger Capital Fund.
Haverhill filed a lawsuit to get answers. It believes that Falcone desperately added two seats to the board and sold additional shares in Harbinger Group, something that Haverhill equates to “Falcone effectively used (using) Company assets to bail himself out of a personal financial crisis.” (Again)
By appointing two new directors, Harbinger Group diluted the representation of ordinary shareholders, giving small shareholders “less of a voice,” Haverhill claims in the suit.
Falcone is no stranger to court, he’s simply added a lawsuit against him. Neither Falcone or Harbinger has responded publicly to the suit or the accusations.