SEC files fraud charges against hedge fund, LightSquared backer

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TheHill:

The Securities and Exchange Commission (SEC) has filed fraud charges against Philip Falcone, alleging the hedge fund adviser misused client funds, manipulated financial markets and betrayed investors.

The civil suit filed against the billionaire founder of Harbinger Capital and LightSquared runs down a litany of misbehavior, including accusations he used over $100 million from a hedge fund he advised to pay his personal taxes. The fund's former chief operating officer, Peter Jenson, was charged with aiding in the scheme.

"Today's charges read like the final exam in a graduate school course on how to run a hedge fund unlawfully," said Robert Khuzami, the SEC's enforcement director.

The SEC also claims that Falcone attempted to illegally manipulate the market on some distressed high-yield bonds in a bid to seek "revenge" against other investors, buying up all of a particular company's debt and then bidding up the price on the debt to the detriment of investors that had taken "short" positions on the bonds.

The regulator also charges that Falcone and his fund gave certain clients secret, favorable treatment and also participated in illegal trades tied to three public offerings of stock.

Falcone, through his lawyer, has contested any charges of impropriety.

“Any allegations by the SEC of improprieties by Mr. Falcone or Harbinger are neither supported by the facts or the law,” Matthew Dontzin, an attorney for Falcone, told Bloomberg. “Should a lawsuit be brought, it will be contested vigorously.”

Beyond the SEC charges, Falcone's business activity has also garnered the attention of Congress, via the high-profile failure of the wireless broadband company LightSquared.