Hedge fund manager Philip Falcone and his firm Harbinger Capital Partners have admitted to market manipulation and other misconduct as part of an $18 million settlement with the U.S. Securities and Exchange Commission.
In a consent order issued Monday, Falcone acknowledged that he violated federal securities laws by loaning himself $113 million to pay a tax bill and by favoring redemption requests by certain hedge fund clients. Falcone agreed to a five-year ban from the securities industry as part of the deal. He'll personally pay $11.5 million in fines and disgorgement, while Harbinger Capital will pay a $6.5 million penalty.
The settlement appears to be the first requiring an admission of wrongdoing since former Debevoise & Plimpton partner Mary Jo White took over as SEC chair in April. The agency made waves in June by adopting a policy of refusing to settle cases of serious misconduct without such mea culpas, though White later explained at a conference that the majority of settlements will still follow the neither-admit-nor-deny script, since "you get money out quicker" and "you have no litigation risk."
The SEC's long-standing willingness to let defendants stay mum on culpability has been criticized by many, including influential U.S. District Judge Jed Rakoff of the Southern District of New York. Rakoff's 2011 refusal to sign off on a proposed $285 million deal with Citigroup Inc. because it "deprived [the public] of ever knowing the truth in a matter of obvious public importance" is still being reviewed by the U.S. Court of Appeals for the Second Circuit.
The enforcement division of the SEC first reached a settlement with Falcone and Harbinger Capital earlier this year. Under the original iteration of the deal, Falcone would have served a two-year ban. In July, the four SEC commissioners voted 3-1 to rescind the agency's settlement offer. Harbinger Group Inc., a publicly traded company led by Falcone, disclosed the rejection of the settlement in a regulatory filing.
Monday's consent order doesn't require Falcone to step down as CEO of the publicly traded company. The settlement must be approved by a federal judge.
The boutique law firm Dontzin Nagy & Fleissig guided Falcone to the settlement. Name partner Matthew Dontzin was not immediately available for comment.