SEC charges LightSquared’s biggest backer with fraud

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Phlip Falcone, the head of the private equity firm that invested billions in failed spectrum play LightSquared has been charged with fraud. The U.S. Securities and Exchange Commission said on Wednesday afternoon that it was changing the founder of Harbinger Capital Partners with misappropriating client assets, market manipulation, and betraying clients.

The SEC also charged Peter A. Jenson, Harbinger’s former Chief Operating Officer, for aiding and abetting the misappropriation scheme. The SEC also reached a settlement with Harbinger for unlawful trading. That’s a lot of drama for Falcone, who was the man who doggedly fought to build the assets of two satellite investments into a planned 4G network that would cover the U.S. with a wholseale broadband service.

The idea was improbable but it could have changed the wireless market. Unfortuantely LightSquared ran afoul of Washington politics as well as technical limitations associated with its specturm and interference with the GPS band. As it faltered, it took Harbinger and Falcone down with it.

The SEC release noting its charges says:

The SEC alleges that Falcone used fund assets to pay his taxes, conducted an illegal “short squeeze” to manipulate bond prices, secretly favored certain customers at the expense of others, and that Harbinger unlawfully bought equity securities in a public offering, after having sold short the same security during a restricted period.

Specific wrongs include the accusation that Falcone took $113.2 million form a hedge fund that he advised to pay his personal taxes, his illegal trades involving purchasing stock in three companies during their public offerings and then shorting those stocks during a restricted period. More can be found in the SEC’s release.

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