Securities and Exchange Commission members rejected a staff-proposed settlement with New York-based hedge fund manager Harbinger Capital Partners and its founder Philip A. Falcone, according to a company 8-K filing Thursday.
HCP and related groups were informed that SEC commissioners “voted not to approve the previously disclosed agreement in principle between the enforcement staff of the SEC and the HCP parties” to settle two SEC civil actions, the filing said. No reason for the rejection was given, and calls to Harbinger were not returned by press time.
SEC officials declined to comment on why commissioners decided during a closed meeting not to accept the staff-recommended settlement, a move considered unusual.
“Typically the senior enforcement staff is very attuned to what the commissioners will accept in terms of a settlement (and) commissioners will typically defer to the staff as to the facts,” said Thomas Gorman, a former SEC enforcement official and current partner at international law firm Dorsey & Whitney in Washington. “This is perhaps all the more surprising since the new SEC Chair, Mary Jo White, just placed her right-hand man as the co-director of the Division of Enforcement.”
On June 27, 2012, SEC staff filed fraud charges against Mr. Falcone and HCP claiming misappropriation of client assets, including $113 million to pay his personal taxes; market manipulation; and granting some clients preferential rights. The charges, then-enforcement director Robert Khuzami said at the time, “read like the final exam in a graduate school course in how to operate a hedge fund unlawfully.”
The proposed $18 million settlement would have barred Mr. Falcone from hedge fund activities for two years but did not require an admission of wrongdoing or his removal as chief executive of Harbinger Group.