Targets of Securities and Exchange Commission civil suits may face yet another hurdle toward settlement, as demonstrated by the commissioners' rejection this month of a settlement in principle reached between SEC enforcement staff, Philip A. Falcone, and his hedge fund, Harbinger Capital Partners LLC. The commissioners' rejection of the Harbinger settlement, coupled with its recent shift in policy regarding "neither admit nor deny" statements and the federal courts' heightened scrutiny over SEC settlements, suggests that litigants may have a tougher road to settlement than they have in the past.

The Harbinger Case

The SEC filed two related civil actions on June 27, 2012, against certain Harbinger entities, Falcone, and Peter A. Jenson (Harbinger's former chief operating officer). The SEC alleged that Falcone and Harbinger violated Section 17(a) of the Securities Act, Section 10(b) and Rule 10b-5 of the Exchange Act, and Sections 206(1), 206(2), and 206(4) and Rule 206(4)-8 of the Advisers Act. The SEC further alleged that Falcone was liable as a "control person" under Section 20(a) of the Exchange Act. Finally, the SEC alleged that Jenson aided and abetted Falcone's and Harbinger Capital's misappropriation scheme.