WASHINGTON — Billionaire hedge fund manager Philip Falcone and his firm have agreed to pay $18 million to settle civil fraud charges that he used fund money to pay his taxes and favored some clients over others.
Falcone would be barred for two years from working as an investment adviser or broker under the agreement in principle between the Securities and Exchange Commission and Falcone and Harbinger Capital Partners.
Falcone and Harbinger would neither admit to nor deny the SEC’s allegations. Falcone could still own Harbinger Capital, but it would be overseen by an independent monitor. Falcone could not make investments for the fund or raise money for it.
The SEC alleged that from 2006 through early 2008, Falcone manipulated the market for high-yield, high-risk bonds issued by Maax Holdings Inc. Using fund money, Falcone bought many of the bonds to shrink the supply and drive up prices, the SEC said. The SEC also said Falcone and Harbinger secretly gave some key investors the right to cash out.
; 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.
Last year, the SEC reached a settlement with Harbert Management Corp., a firm with ties to Harbinger. The SEC said Harbert had the power to control Falcone and Harbinger but failed to stop the bond manipulation scheme.
Harbert and two related firms agreed to pay a $1 million civil fine. They, too, neither admitted nor denied wrongdoing.