The SEC Is Investigating Phil Falcone's Harbinger For Possible Market Manipulation

Regulators are now investigating Harbinger Capital Partners on at least five matters.

In the most recent investigations, the SEC is investigating whether Appaloosa violated market manipulation rules related to unnamed debt securities in 2006-2008, and whether Harbinger violated short selling rules in its trading of three stocks in 2008 (the trader who short sold the stocks is, like a number of Harbinger employees who have left in the last couple of years, no longer with the company). 

So we’re already up to four investigations.

Regarding the possible short sale violation, SEC made a similar probe into David Tepper’s Appaloosa. As far as we know, nothing came of it.

As far as the debt securities investigation goes, Reuters says it started in 2008 and is considered to be fairly far along.

The interesting thing is that the market manipulation investigation centres around the time frame when Harbinger made most of its profits. In 2007, Harbinger returned 119%. In 2008, they had a bad year, down 29.33%. In 2009, Falcone was up 46.55%. In 2010, Falcone was down 13.16% as of November 15th. Its assets have dropped from $26 billion to around $7 billion.

Also, Falcone’s Harbinger fund has had to explain itself to investors frequently within the the last year.

They are also investigating whether or not Harbinger should have disclosed to investors that he took a $113 million loan from his public company (he paid it back). That’s five.

Harbinger also let investors know that he settled a $60 million settlement with NACCO Industries. The company alleged that the hedge fund improperly interfered in a 2006 takeover battle and received nonpublic information about a rival’s bid, according to the WSJ.

See also: Harbinger turned a sausage company into a public version of his hedge fund

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