In another score for the Asset Management Unit within SEC's Division of Enforcement, the commission filed fraud charges against New York-based hedge fund advisor Philip Falcone and his advisory firm, Harbinger Capital Partners, on Wednesday.
The Securities and Exchange Commission accuses Falcone and his firm of illicit conduct that included "misappropriation of client assets, market manipulation and betraying clients." The SEC also charged Peter Jenson, Harbinger's former chief operating officer, with aiding and abetting the misappropriation scheme. Additionally, the SEC reached a settlement with Harbinger for unlawful trading.
In a separate, settled action, the SEC charged Harbert Management Corp., whose affiliates served as the managing members of two Harbinger-related entities, as a controlling person in the market manipulation.
According to the complaint, Falcone allegedly used fund assets to pay his taxes, conducted an illegal "short squeeze" to manipulate bond prices and secretly favored certain customers at the expense of others. The complaint also alleges that Harbinger unlawfully bought equity securities in a public offering, after having sold short the same security during a restricted period.
"Today's charges read like the final exam in a graduate school course in how to operate a hedge fund unlawfully," Robert Khuzami (left), director of the SEC's Division of Enforcement, said in a statement. "Clients and market participants alike were victimized as Falcone unscrupulously used fund assets to pay his personal taxes, manipulated the market for certain bonds, favored some clients at the expense of others, and violated trading rules intended to prohibit manipulative short sales."
