Judge OKs SEC's Falcone settlement with admission of wrongdoing

NEW YORK Mon Sep 16, 2013 7:06pm EDT

Philip Falcone, chief executive officer and chief investment officer for Harbinger Capital Partners, participates in a panel discussion during the Skybridge Alternatives (SALT) Conference in Las Vegas, Nevada May, 9, 2012 file photo. REUTERS/Steve Marcus

Philip Falcone, chief executive officer and chief investment officer for Harbinger Capital Partners, participates in a panel discussion during the Skybridge Alternatives (SALT) Conference in Las Vegas, Nevada May, 9, 2012 file photo.

Credit: Reuters/Steve Marcus

NEW YORK (Reuters) - A federal judge on Monday approved the U.S. Securities and Exchange Commission's $18 million settlement with hedge fund manager Philip Falcone, the regulator's first big case to include an admission of wrongdoing since a recent policy change.

U.S. District Judge Paul Crotty in Manhattan called the civil sanctions, which include a five-year securities industry ban, "appropriate and proportionate to defendants' admitted wrongful conduct," and a "fair and appropriate resolution."

The settlement resolved SEC civil charges over Falcone's management at his hedge fund, Harbinger Capital Partners.

Falcone was accused of manipulating markets by conducting a "short squeeze" to force short-sellers to sell distressed, high-yield bonds at inflated prices.

The SEC said Falcone also wrongfully favored some investors over others when meeting redemption requests, and lent himself $113 million from his fund to pay taxes. Falcone later repaid the loan.

The settlement was announced on August 19, one month after the SEC rejected a more lenient accord that its enforcement staff had reached with Falcone.

While that accord included a two-year ban on raising new capital, it did not include an industry ban or an admission of wrongdoing.

SEC Chair Mary Jo White said in June, two months after taking the regulator's helm, that she would require admissions of wrongdoing from more defendants as a condition of settling.

This was a change from the customary SEC policy to let the vast majority of settling defendants "neither admit nor deny" wrongdoing.

Harbinger Capital once oversaw $26 billion of assets, but that sum had fallen to around $3 billion earlier this year.

The revised settlement let Falcone remain chief executive of his publicly traded company, Harbinger Group Inc.

The cases are SEC v. Falcone et al, U.S. District Court, Southern District of New York, No. 12-05027; and SEC v. Harbinger Capital Partners LLC et al in the same court, No. 12-05028.

(Reporting by Jonathan Stempel in New York; editing by Andrew Hay)

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Comments (1)
breezinthru wrote:
So the SEC is getting tough by making Falcone admit wrongdoing? I’ll bet that was painful for the poor fellow, but not as painful as a prison sentence would be.

A fine is not enough of a deterrent to the bad behavior of others. Neither is a sanction against trading for a few years or a two year moratorium against raising capital a strong enough deterrent.

Where the hell is the DOJ? Justice demands some prison time. Ordinary Americans spend time in prison for lesser crimes.

Sep 16, 2013 9:21pm EDT  --  Report as abuse
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