SEC Complaint Against Harbinger Capital – aka “Was That Wrong? Should I Not Have Done That?”

For those not familiar with the reference in the title, you need to catch up on your Seinfeld reruns.

The SEC has charged Phil Falcone of Harbinger Capital with a cornucopia of violations that SEC enforcement head Robert Khuzami said:

read like the final exam in a graduate school course in how to operate a hedge fund unlawfully…

Falcone is charged with:

1) borrowing money from the fund to pay his personal taxes (he had his lawyers sign off on this), while at the same time restricting client withdrawals

2) creating a deliberate, manipulative short squeeze in a bond issue to punish the shorts (he bought MORE than 100% of the outstanding interest in a certain bond, then demanded that the prime broker return the bonds it had been borrowing for its short: see Dealbreaker for more)

3) violating short sale rules with respect to offerings (you aren’t allowed to short a stock that has a secondary offering coming and then cover the short position in the offering)

4)  granting special redemption privileges to certain investors

Falcone’s response to the charges?

“Piece of cake,” adding, “It’s not like I’m having a heart transplant.” 

for more, read:

1) Dealbreaker – Phil Falcone’s Allegedly Piggish Behavior Made Him Some Enemies

2) Business Insider: “Falcone’s Attorney Responds to Charges

3) SEC: Philip Falcone and Harbinger Charged With Securities Fraud

-KD

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