Falcone Banned at Fidelity for 7 Years by N.Y.’s Lawsky
Billionaire Philip Falcone was banned by New York state’s top financial watchdog from being an officer or director of Fidelity & Guaranty Life for seven years for using his hedge funds’ money for his personal taxes.
Falcone, 51, is also barred from “direct or indirect control over the management, policies, operations” and investment funds of Fidelity’s New York unit, the state’s Department of Financial Services said yesterday in a statement. The ban also applies to employees of his hedge fund, Harbinger Capital Partners LLC, which controls the insurance company.
Falcone’s absence isn’t a major concern because he “is not involved in the day to day,” Kevin Cassidy, an analyst at Moody’s Investors Service, said by phone. Harbinger Group Inc. (HRG), the insurer’s parent company, has other executives who can oversee Fidelity, Cassidy said.
The ban stems from Falcone’s accord in August with the U.S. Securities and Exchange Commission, which had sued him over the same claims and banned him for five years from the securities industry. In that case, Falcone admitted to improperly borrowing $113.2 million from the fund and giving preferential treatment to some clients when returning their money.
While Falcone isn’t an officer or director at Fidelity, the ban is intended to prevent him from exerting his potential influence over the insurer in any capacity through his role as Harbinger Capital’s chief executive officer, according to a person familiar with the matter who wasn’t authorized to give details about the case. Fidelity’s SEC filings list Falcone as the company’s “ultimate controlling person.”
Fidelity, based in Baltimore, is run by Chief Executive Officer Lee Launer, a former executive at MetLife Inc., the largest U.S. life insurer.
“It is vital to ensure that those who operate insurance companies will always put retirees and policyholders first and act with the utmost integrity,” DFS Superintendent Benjamin Lawsky, who regulates banks and insurers operating in New York, said in the statement.
Falcone, who became a billionaire by betting against the U.S. housing market in 2006, was approached by Lawsky’s office following his settlement with the SEC, Matthew Anderson, a spokesman for the DFS, said in a phone interview yesterday.
Harbinger Capital’s general counsel, Robin Roger, and its chief financial officer, Keith Hladek, resigned from Fidelity’s board in anticipation of the ban, said two people familiar with the matter, who weren’t authorized to discuss the moves publicly.
Employees of Harbinger Group aren’t affected by the ban, and some of its employees are still on the board, the people said.
Hladek declined to comment when reached by phone yesterday. Roger didn’t immediately return a call for comment.
Following negotiations, Falcone, Harbinger and Fidelity all agreed to the seven-year ban against Falcone and the deal’s reach beyond New York, where the regulator has authority, Anderson said.
The New York ban comes as Fidelity is seeking a valuation of at least $1 billion in its initial public offering, according to two people involved in the planning. Harbinger Group bought Fidelity & Guaranty, the U.S. life and annuity unit of London-based Old Mutual Plc (OML), for $350 million in 2011.
Falcone’s hedge funds last month sold $158 million of Harbinger Group shares, a stake of about 13 percent, to Leucadia National Corp. (LUK) as the money manager meets redemption requests after the SEC settlement.
Eric Goldstein, a lawyer representing Harbinger Capital, didn’t immediately return a call for comment on the DFS ban.
The wrongdoing exposes “serious issues related to Mr. Falcone’s fitness to control the management, operations, and policyholder funds of a New York insurance company,” Lawsky said in the statement. The statement didn’t say what specific role, if any, Falcone had at Fidelity.
Fidelity’s New York unit agreed to put in place new policyholder protections under yesterday’s agreement, including setting aside $18.5 million in a trust account to replenish its risk-based capital levels to protect consumers from unexpected losses, Lawsky said.
The guidelines are modeled on internal rules adopted by other insurance companies owned by private equity firms and investment companies at the financial regulator’s request, according to yesterday’s statement.
U.S. money manager Guggenheim Partners LLC and Apollo Global Management LLC (APO) agreed this year to similar policyholder protections, according to the statement.
To contact the reporter on this story: Erik Larson in New York at firstname.lastname@example.org