NEW YORK (Reuters) - An offshore hedge fund firm whose investing was led by money manager Philip Falcone will pay $30 million to resolve claims it knowingly evaded hundreds of millions of dollars of New York state and New York City taxes, officials said on Thursday.
The settlement with Harbinger Capital Partners Offshore Manager LLC for violating the state’s False Claims Act was announced by state Attorney General Barbara Underwood and New York City Corporation Counsel Zachary Carter.
It came 17 months after Alabama-based Harbert Management Corp, which sponsored Falcone’s once-$26 billion hedge fund Harbinger Capital Partners, reached a $40 million settlement with New York state for nonpayment of taxes.
The Harbinger manager “deliberately dodged paying its fair share of taxes,” Underwood said. “Tax evasion forces ordinary New Yorkers to shoulder the bill.”
Falcone is now chief executive of a holding company, HC2 Holdings Inc. His lawyer Matthew Dontzin said he was pleased that officials recognized that the questionable tax decisions were made by the Harbinger manager’s officers and agents in Alabama, “not by Mr. Falcone.”
The case stemmed from a March 2015 lawsuit by a then-unnamed whistleblower, now identified as Crossroads Analytic LLC, that will receive a $15.4 million award.
A company with that name is registered in Delaware, but further information was not immediately available.
Neil Getnick, a lawyer for Crossroads, in an interview said New York’s False Claims Act is the “most robust” in the country, and had been amended in 2010 to cover tax claims.
“The $70 million that has been recovered is real money by any measure,” he said. “Applying the lessons of today’s case more generally could lead to more liability for the hedge fund and financial services industries.”
According to an amended complaint dated Wednesday, the Harbinger manager paid “little to no tax” in New York on incentive fees from 2004 to 2008, when Falcone was making billions of dollars betting on a U.S. housing collapse.
Instead, Harbinger chose to report income in Alabama, where it had “minor” back-office operations and taxes were “far lower,” the complaint said.
This occurred even though an unnamed “international accounting firm” advised the Harbinger manager in 2005 that taxes on incentive fees would be owed in New York, the complaint said.
Falcone later suffered heavy losses investing in a wireless company, LightSquared, that went bankrupt in 2012.
He agreed in 2013 to a five-year industry ban related to Harbinger Capital Partners, including for favoring some investors over others and borrowing $113 million to pay personal taxes.
Reporting by Jonathan Stempel in New York; Editing by Leslie Adler