The Complete Story Of How Billionaire Phil Falcone Rose So High And Could Fall So Far

Phil Falcone has been in the news lately, and it hasn’t been good. LightSqaured, the project in which he’s stuck billions of dollars, is on the skids.

He just sold a stake in his Brazilian mining company to Carl Icahn in order to raise cash (according to observers).

Earlier this year he was investigated over allegations of market manipulation.

Setbacks aside, Falcone has had a magnificent ride to the top. He’s still worth billions, has a stunning wife and two daughters, and lives in a fabulous mansion.

Phil Falcone came, though, from nothing. Read on and you’ll find out how he got to where he is now.

Falcone was raised in Chisholm, Minnesota, and took his first plane ride ever when he went to Harvard.

He was the youngest of 9 kids. Chisholm is about 100 miles from the Canadian border.

At Harvard he studied economics, but after school he played professional hockey. He was injured after a year.

When he was young, friends called him 'Phasion Phil', because he had a taste for expensive clothes.The Harvard Store and the Andover Store were two favourites.

Source: Vanity Fair

That's when Phil went to Wall Street. He became a junk-bond trader at Kidder Peabody in 1985.

Phil had his first major set back in 1991, when he and a friend put all their money on New Jersey hairbrush company. They lost it all.

But he got back up again. In 2001 Herbert Management Corporation, an asset management firm, gave him $25 million. By 2006 he'd grown the fund to $5 billion.

He traded distressed debt.

In the meantime, Phil met his wife, Lisa Marie Velasquez at restaurant Castanel's on Park Avenue South in 1992. They were married five years later.

She told Bloomberg BusinessWeek she was working as a model at the time.

Then, in 2006 and 2007, he made his biggest trade of all. $15 billion against sub-prime mortgages.

He said it took him months to truly understand the complicated market, and he took home over $1 billion himself after the deal. As for the fund, when reached his peak, though, he was managing $26 billion, in 2007 it returned 114%.

The dough kept rolling in. In 2008, he was up 29.33% and in 2009 he was up 46.55%.

He didn't know it then, but the SEC was investigating him at that point.

Source: Reuters via Business Insider

In 2009, Wall St was suffering but that didn't stop him from spending. He bought the $49 million Guccione mansion, formerly owned by the owner of Penthouse.

And it looked like it was designed by the guy who owned Penthouse, so he and Lisa gutted it. Since Wall Street was trying to be less ostentatious, the $10 million renovation raised a lot of eyebrows.

More of the house...

Here's what's inside (according to The NY Post)

  • Their own personal concierge service complete with a dry-cleaning 'press room' in the basement.
  • A security room with tons of video cameras where guards will watch what's going on.
  • Lisa Falcone gets a bar inside one of her 2 closets.
  • Heated sidewalks to melt ice.

And there's an indoor pool.

The house was less conspicuous, though, than Lisa. She wears wild outfits... and there was that one time she pulled a Kanye.

At a glitzy society event for the park, Joshua David, the founder of the Friends of the High Line was giving a speech at a benefit when Lisa burst onto the scene and stole the spotlight to proclaim, 'Philip and I are donating $10 million!

Source: W Magazine

That's not the end of Lisa's eccentricity by the way. The Harlem-raised mother of two twins also has a trained pig

She also has her own movie production company and produces movies with acts like Swizz Beats. Here's a photo of her at the Toronto Film Festival.

Phil bought some things for himself too. He owns the Minnesota Wild hockey team.

'I think the dream come true would be to be out there playing,' he told Forbes. 'But things work out in different ways.

The offices at his hedge fund are named after hockey teams too.

In 2010, though, Falcone was down 14.6% and the SEC came knocking asking about market manipulation. Then it was the IRS

Falcone was taking a lot of loans, some from banks, and a $113 loan from his own private company. Investigators wondered if he was obligated to tell his clients about the latter.

Apparently, though, he's paid it back.

A year later he was being investigated for market manipulation.

The IRS is also interested in the Falcone's failure to pay their semi-annual tax bill in 2011.

As of July 15, Falcone's Harbinger Capital Partners Offshore Fund I was down 10.7 per cent, ranking the New York-based fund manager one of the industry's 20 worst performers, according to HSBC.

Source: Business Insider via Reuters

But that controversy didn't put a damper on Falcone's lavish lifestyle. This summer they rented this enormous Hamptons house for $700K.

The 18,000 square foot house sits on eight acres of land, has an indoor spa room with a hot tub, a media room, two separate cottages, a heated pool, tennis courts, and a stable for up to five horses.

Earlier this year, Falcone was in the news for two things. One is yet another SEC investigation involving Goldman Sachs.

The investigation is focused on an allegation that Harbinger allowed Goldman Sachs to withdraw $50 million from the fund in 2009, when the firm had more or less closed off investor withdrawals in the midst of market turmoil, according to DealBook.

Meanwhile, in 2011, Harbinger's main fund was down 47%.

Another is LightSquared, a telecom company he's deeply invested in. It's the bet of his life.

Falcone has put his own money into the telecom company whose aim is to bring affordable internet access to rural America (not surprising given Falcone's background). But the company has come up against opposition from those who argue it could disrupt GPS systems... as well as, of course, it's potential competitors (AT&T), and the politicians who take their money.

Some people are calling it the bet of his life. Success would take him from being a money manager, to being a titan of American business.

But it's looking like everything is falling apart for LightSquared.

The problem with LightSquared is that its spectrum interferes with GPS systems. Because of that, it's impossible for him to get approval from regulator, the National Telecommunications & Information Administration. They have to let the FCC know that everything is OK -- so far, they are saying LightSquared is a no-go.

Source: Business Insider

Even politicians are getting in mix, trying to take down LightSquared.

Falcone's biggest political enemy is Iowa Senator Chuck Grassley. He claimed LightSquared was trying to game the system, and forming quid pro quo deals with industry insiders.

Falcone countered back with a scathing letter (read it here), where he released a bunch of shady e-mails from Grassley's office to anyone and everyone in the press.

But LightSquared is still not getting regulatory approval.

Source: Business Insider

Now, LightSquared is losing support from allies.

Sprint terminated its contract with LightSquared in March and reports indicate that investors like Carl Icahn are trying to get Falcone to declare bankruptcy.

Today, Icahn bought a big share of Falcone's Brazilian mining company.

From Bloomberg:

Harbinger has been looking for a buyer for part of its 26 per cent Ferrous stake since at least February to raise cash to pay down a loan from Jefferies Group Inc.

Source: CNN Money, Bloomberg

Falcone wasn't the only hedge funder who won big voting against sub-prime.

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