Chidem Kurdas
After agreeing to step down as chief officer and chairman of New York Stock Exchange-listed Harbinger Group (HRG), Philip Falcone and hedge funds he manages still own nearly 38 million shares in the public company.
Plus Mr. Falcone apparently has a warrant allowing him to buy another three million shares.
Last month he and his hedge funds sold five million HRG shares to Leucadia National Corp., which is the single largest stockholder, owning 23% of the company. The $12.90 a share price was higher than the $11 price Mr. Falcone got in April when he sold a chunk of HRG and substantially higher than the prices he sold at before that.
Mr. Falcone has been unloading HRG as part of the process of liquidating his hedge funds to return money to investors as per an agreement he made with the U.S. Securities and Exchange Commission to settle various charges. The charges included using clients’ money to pay his personal income tax and giving favorable redemption terms to certain fund investors to get their consent to restrict the redemption rights of others.
The liquidation of the funds was expected to take two to four years but could take longer. Two years have already gone by. He may hold off on selling the remaining HRG stake until the price rises.
The agreement with the regulator bars him from the securities industry for several years. This condition restricted the deals HRG could make under his leadership, precluding securities businesses, thereby possibly dampening the HRG share price. Looks like Mr. Falcone was offered attractive terms – including more than $40 million for compensation and bonus – to resign.
While he is under obligation to sell HRG shares owned by his hedge funds in order to return investors’ money, Mr. Falcone could personally continue to own the stock.
He has said that he will focus on another publicly traded holding company, HC2 Holdings. HRG owns a stake in HC2, which is to be sold, possibly to Mr. Falcone.
His financial and legal woes stem from a multi-billion dollar investment he made to the wireless network, LightSquared. That business failed to get government approval for its network and went bankrupt. Mr. Falcone, having largely committed the hedge funds to this one asset that became frozen in bankruptcy, denied most redemption requests. That led to litigation by fund clients and a regulatory investigation.
Despite it all, he seems to have done well for himself.
