Harbinger’s Falcone Ask Court to Throw Out SEC Lawsuits
Harbinger Capital Partners LLC founder Philip Falcone asked a federal judge to dismiss two lawsuits filed by the U.S. Securities and Exchange Commission in June.
Falcone’s alleged fraudulent $113 million loan from a Harbinger fund in 2009 to pay an unanticipated personal tax liability was taken out on the suggestion of Harbinger’s outside counsel and repaid in full at above-market interest, Falcone and Harbinger said yesterday in one of their requests to throw out the SEC claims filed in federal court in Manhattan.
Another allegedly fraudulent scheme to allow large investors to withdraw funds in exchange for their vote to restrict redemptions in a different fund harmed no one and was permitted under the relevant fund’s documents, Falcone and Harbinger said.
The SEC “seeks to stretch the prohibitions in the federal securities laws to cover conduct that, to our knowledge, has never been the subject of any previous enforcement action,” Falcone and Harbinger said.
The SEC sued Falcone on June 27, accusing him of misappropriating client assets, favoring select investors and manipulating bond prices. The lawsuits were a second blow this year for Falcone, a former Harvard hockey center, after LightSquared Inc., Harbinger’s biggest investment, filed for bankruptcy in May.
The SEC is seeking disgorgement of ill-gotten gains, unspecified financial penalties and a prohibition on Falcone serving as an officer or director of a public company, according to a statement by the agency.
The SEC, in a separate complaint, alleged that Falcone and two of his funds engaged in a short-squeeze of MAAX Holdings Inc. bonds, a transaction in which a buyer limits the supply of a security to drive up prices and cause losses for investors betting against the security.
“Although ‘short squeezes’ have existed for centuries, no court ever has held that the conduct alleged here constitutes market manipulation,” Falcone and Harbinger said in their request to dismiss the SEC’s claims.
Harbinger had no obligation to disclose its holdings of the distressed high-yield bonds to short sellers, and the SEC, in its complaint, hasn’t alleged that buying the bonds and refusing to sell them to short sellers was aimed to deceive anyone, Falcone and Harbinger said.
The cases are SEC v. Harbinger, 12-05027 and 12-05028, U.S. District Court, Southern District of New York (Manhattan.)
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