Falcone Pushes Public Offering

Chidem Kurdas

The new year starts with a bold move by Philip Falcone. He is going ahead with a plan to raise money by selling stock to the public, despite being accused by regulators of serious breaches in trading and his treatment of his clients.

Jefferies & Co. has agreed to lead the underwriters that will market 20 million or more shares of Harbinger Group Inc., a public company Mr. Falcone created. His funds own more than two-thirds of the company and are the sellers of the stock. The price is set at $7.50 per share.

He says he has not been convicted of any criminal act nor received any civil judgment for violating securities laws, implicitly suggesting that the government’s charges against him are not a barrier to the public offering.

Indeed, it is true that he has not been convicted, but the US Securities and Exchange Commission charged him with illegal trades, using clients’ money to pay his personal income tax – he did return it – and giving favorable redemption terms to certain major investors to get their consent to restrict the redemption rights of others.

For the purpose of the offering, Mr. Falcone reminded the SEC that none of the sellers have been convicted in the last five years except for traffic violations or similar misdemeanors.

His once successful hedge fund business has been almost destroyed by a several billion dollar investment he made in wireless provider LightSquared. That investment is tied up in bankruptcy and probably lost.

In the meanwhile many fund clients who tried to redeem were not allowed to do so. Mr. Falcone expects to take several years to unwind the funds and has locked up remaining capital in a side pocket. https://hedgefundsmarts.wordpress.com/2012/09/06/falcone-keeps-distress-in-side-pocket/

Jeffries, the chief underwriter for the new offering, helped his financial survival by providing a loan. The proceeds from the public offering may be used to pay back that loan. In that case investors who have been waiting to get their money back will not get much from the stock sale.

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2 Responses to “Falcone Pushes Public Offering”

  1. Falcone Renews Financing for Harbinger Stake | HedgeFundSmarts Says:

    […] months ago, while still in the midst of fighting serious allegations by the SEC, Mr. Falcone wanted to sell to the public 20 million or more shares of Harbinger Group owned by the funds he controls — which are winding down, albeit very […]

  2. Falcone Sells Harbinger | HedgeFundSmarts Says:

    […] still own a big stake in the public company. Mr. Falcone, who controlled 74.2% of the stock, had wanted to sell 20 million or more shares in a secondary public offering, but so far that has not […]

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