The Securities and Exchange Commission has filed fraud charges against the well-known New York-based hedge fund advisor Philip Falcone and his firm, including misappropriation of client assets, market manipulation and betraying clients.
Falcone fraudulently obtained $113.2 million from a hedge fund that he advised and used the proceeds to pay his personal taxes, according to the SEC.
Moreover, the regulator alleges that Falcone illegally manipulated bond prices, secretly favored certain clients, and that his firm, Harbinger Capital Partners, unlawfully bought equity securities in a public offering after having sold short the same security during a restricted period.
The SEC alleges that Falcone, who is one of the top 400 richest people in the US with a net worth of $1.1 billion according to Forbes, also lied to his clients about his actions.
“Today’s charges read like the final exam in a graduate school course in how to operate a hedge fund unlawfully,” said Robert Khuzami, director of the enforcement division at the SEC. “Clients and market participants alike were victimized as Falcone unscrupulously used fund assets to pay his personal taxes, manipulated the market for certain bonds, favored some clients at the expense of others, and violated trading rules intended to prohibit manipulative short sales."
Tax debt in 2009
Falcone owed federal and state authorities $113.2 million in taxes in 2009. Instead of pursuing other options, he allegedly took a loan from the Harbinger Capital Partners Special Situations Fund, a fund which Harbinger had earlier suspended investors from redeeming.