Phil Falcone's Harbinger to Suspend Funds

Phil Falcone told clients he is suspending his hedge funds, effective December 30, 2011.

The announcement was made at the same time the hedge fund manager told clients Harbinger Capital Partners LLC (HCP) and certain of its affiliates received a Wells Notice from the Securities and Exchanges Commission, indicating that the regulator may take civil action against the entities, as well as Falcone, and executives Omar Asal and Robin Roger for alleged violations of certain federal securities laws.

The announcement stressed that while a Wells Notice reflects the views of the SEC staff, it “does not constitute a determination that the recipients have violated any law.”

Falcone’s letter said that HCP and its affiliates “are disappointed” that the staff issued Wells Notices and that except for certain “previously disclosed matters,” they strongly disagree with the staff that any violation of federal securities laws occurred and will try to convince it that enforcement actions are unwarranted. “If the SEC decides to bring an enforcement action, HCP and its affiliates intend to vigorously defend against it,” Falcone wrote.

It has been known for some time that regulators have been investigating a $113 million personal loan he took from his hedge fund, and which he recently paid back.

Falcone has suffered other bad publicity of late. In September a published report said he owes more than $192,000 in taxes for two homes on the Upper East side.

Falcone’s reputation flourished in 2007 when he personally made $1.7 billion after making the kinds of bets John Paulson made against the crumbling sub-prime mortgage market.

However, his record since then has been decidedly mixed. The Minnesota native, whose wife seems to land on the New York Post’s Page 6 with semi-regularity, lost more than 29 percent in 2008 before rebounding with a better than 46 percent gain in 2009 and then posting a 12 percent loss in 2010.

His assets under management currently stand at $5.66 billion, down from a high of $26 billion.

He has also been criticized for investing $3 billion of his firm’s assets into LightSquared, a controversial telecom company that is building a wireless broadband network.

Earlier this summer, Sprint agreed to a 15-year deal with LightSquared to share costs associated with developing spectrum hosting and network services, 4G wholesale, and 3G roaming. LightSquared also said it has raised $2.3 billion in the past year alone.

Published reports have suggested Falcone and friends donated funds to Democratic officials to help get a conditional waiver last January that allows the company to use phones that would interfere with global positioning satellites.