Harbinger Capital Partners, one of the most prominent hedge funds in the
United States, is the latest fund to become the subject of an SEC investigation,
according to a recent Wall Street Journal article. The SEC's recent
renewed enforcement efforts have meant that many hedge funds have come
under increased scrutiny by regulators. Of particular interest to regulators
are the funds' trading and valuation practices.
As reported by the article, federal authorities are now investigating
allegations that Harbinger gave illegal preferential treatment to its
founder, Philip Falcone, and several clients. Allegedly, Harbinger extended
a $113 million personal loan to Falcone out of a fund with $2.5 billion
in assets, from which investors were prohibited from withdrawing funds.
Investor complaints have also arisen that Harbinger failed to disclose
the loan to the fund's investors within a reasonable time frame.
The SEC's investigation also seeks to uncover whether Harbinger's
withdrawal terms are the same for all customers. Allegations have arisen
that the fund preferentially allowed a few clients to withdraw money after
the financial crisis hit in 2008 while it prohibited all other clients
from doing so at that time. As reported in the WSJ article, Falcone has
denied the allegations of preferential treatment to particular
Though the fund now manages approximately $9 billion in assets, it managed
$26 billion in assets in 2008.According to the article, Harbinger's
main fund has declined almost 15% this year.