The Securities and Exchange Commission has charged billionaire hedge fund manager Phil Falcone with fraud.
And we thought last month’s bankruptcy of his massive telecom start-up, LightSquared, was bad.
The SEC alleges that Falcone is guilty of a laundry list of violations from manipulating bond prices to misappropriating money from his funds to pay back taxes.
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.
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.
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%.
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.
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.
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!
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.
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 million 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.
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.
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 was 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%.
Falcone put his own money into the telecom company whose aim was to bring affordable internet access to rural America (not surprising given Falcone's background). But the company came up against opposition from those who argued 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 called it the bet of his life. Success would take him from being a money manager, to being a titan of American business.
The problem with LightSquared was that its spectrum interfered with GPS systems. Because of that, became impossible for Falcone 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.
Falcone's biggest political enemy was 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 couldn't get regulatory approval.
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.
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.
On May 14th, Falcone filed for bankruptcy. This after investors basically made Falcone an offer for a $1.6 billion loan that they knew he'd refuse.
'From the start, it didn't appear they weren't negotiating in good faith. It seemed as if they were only interested in seeing if they could force Phil to hand them control of the company so they could flip it for a quick profit,' the source close the situation said.
But the end of LightSquared wasn't the end of Falcone's troubles. Today, the SEC charged him with fraud.
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