UPDATE 2-Fund manager Falcone banned from insurance unit -NY officials

Mon Oct 7, 2013 7:03pm EDT

By Svea Herbst-Bayliss and Katya Wachtel

BOSTON/NEW YORK Oct 7 (Reuters) - Hedge fund manager Philip Falcone, banned from the securities industry for five years by U.S. regulators, is also being banned for seven years from decision-making roles at Fidelity & Guaranty Life Insurance, a unit of his firm, New York officials said on Monday.

Falcone is "banned during that period from serving as an officer or director of Fidelity & Guaranty Life and its subsidiaries or any New York-licensed insurer, as well as participating in the selection of any such officers or directors," the New York State Department of Financial Services said.

Fidelity & Guaranty Life is a unit of Harbinger Group, which is majority-owned by Falcone's Harbinger Capital. The insurance unit is planning to sell shares to the public.

The agreement does not require him to sell any of his interest in the insurance operator, according to a person familiar with the matter.

Falcone is also forbidden from "exercising direct or indirect control over the management, policies, operations, and investment funds" of Fidelity & Guaranty Life or any other New York-licensed insurers, according to a press release from the state agency. The ban also applies to the employees of Harbinger Capital Partners.

Falcone said in a statement that he has "not been involved in the day-to-day management of F&GL or its investment decisions, and I will not be in the future."

He added that "Harbinger Capital and I recognize the importance of the guidelines established by the New York State Department of Financial Services under this commitment, and we are committed to ensuring that the management of F&GL is consistent with those guidelines."

Falcone admitted wrongdoing and agreed to pay an $18 million fine to the U.S. Securities and Exchange Commission in August to settle civil fraud charges that he improperly used Harbinger hedge fund money and favored some of his investors.

The agreement was the first to require a defendant to admit wrongdoing since SEC Chairman Mary Jo White announced a much tougher policy in June that would require such admissions more often.

The SEC settlement said it "may have collateral consequences under federal or state law and the rules and regulations of self-regulatory organizations, licensing boards, and other regulatory organizations."

Falcone rose to fame on Wall Street for betting against the subprime mortgage market in a move that saw his New York-based firm reach $26 billion in assets. However, the fund was hit by steep losses in recent years due to a failed wireless startup, LightSquared Inc.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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