WASHINGTON (AP) — Federal regulators are suing hedge fund manager Philip Falcone and his firm, accusing him of civil fraud for using fund money to pay his taxes and favoring some fund customers at the expense of others.
The Securities and Exchange Commission announced the lawsuit Wednesday against Falcone and Harbinger Capital Partners, the firm he founded. The SEC also said that Falcone manipulated bond prices.
The SEC is seeking to ban Falcone from serving as an officer or director of any public company, along with unspecified penalties and restitution.
The lawsuit was expected. Falcone told The Wall Street Journal on Tuesday that he would fight the charges.
The agency said that from 2006 through early 2008, Falcone manipulated the market for high-yield, high-risk bonds issued by a company named Maax Holdings Inc. Using two of Harbinger's funds, he bought up large amounts of the bonds to shrink the supply on the market and drive up prices, the suit alleges.
The SEC also said that Falcone and Harbinger secretly gave "certain strategically important investors" in the fund the right to cash out of their holdings. In exchange, the favored investors gave Falcone and the fund permission to bar the other investors from being able to cash out, according to the SEC. It said that arrangement was hidden from Harbinger's directors.
The SEC filed the suit in federal court Manhattan.
In a separate action, the SEC said it reached a settlement with Harbert Management Corp., a firm with ties to Harbinger that it had accused of aiding in the bond manipulation scheme.