Formal charges filed in the U.S. District Court in New York against Harbinger Capital Partners’ Founder and Senior Managing Director, Philip Falcone, and Chief Operating Officer, Peter Jenson for misappropriating client assets in the amount of $113.2 million to pay Falcone’s personal federal and state tax bills.

The Securities and Exchange Commission formally accused Falcone of illegally operating his hedge fund, fraudulently obtaining $113.2 million from Harbinger client investments for his personal use. Jenson is charged with aiding and abetting Falcone in the misuse of those Harbinger funds without client consent. Additional hedge fund fraud charges were brought against Falcone and two Harbinger investment managers for availability and price manipulation of distressed high yield bonds through an illegal short sale.

Harbert Management Corporation, a U.S. investment management company based in Birmingham, Alabama was the majority owner and financial backer of Harbinger Capital Partners until 2001, when Falcone established the private hedge fund in New York City. Harbinger hedge funds include: Harbinger Capital Partners Master Fund, the Credit Distressed BlueLine Fund, Harbinger Capital Partners Special Situations Fund, and LightSquared, Harbinger’s largest investment that filed for bankruptcy in May. Harbinger’s assets under management (AUM) were reported at $26 Billion in 2008, dropping to $9 Billion as of 2010 as a result of massive investor redemptions. Falcone’s net worth of $1.1 Billion was accumulated in large part by betting against the mortgage subprime market in 2007.

Hedge funds, used for wealth accumulation by the highest net worth individuals and institutions, has been a primary focus of new government oversight since the 2008 credit crisis, resulting in almost continuous charges and convictions of some of Wall Street’s most prominent moguls over the past four years.

Source: Fox Business, “SEC Slaps Falcone, Harbinger With Securities Fraud Charges,” Matt Egan, June 27, 2012

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