Falcone Forced to Sell Harbinger Cheap

Chidem Kurdas

In the past week or two the holder of an option to buy shares of Harbinger Group Inc., the NYSE-listed holding company largely owned by funds managed by Philip Falcone, made a quick killing.

By partially exercising the option, this party acquired about 3.9 million Harbinger shares at $6.50 per share from Mr. Falcone. The recent price quote for the conglomerate is $11.34, down from a 52-week high of $12.14. The option holder could make about $19 million immediately by selling the shares so acquired.

A number of hedge funds – including Leon Cooperman’s Omega – and brokerages have traded Harbinger stock or lent money to Mr. Falcone. One of them is probably the option holder.

Mr. Falcone is liquidating his funds and returning money to long-suffering investors as per an agreement he made with the U.S. Securities and Exchange Commission to settle various charges. Harbinger stock is the main immediately sellable asset his funds own.

A previous sale fetched a higher price at $7.75. The option holder who brought this month got a better deal than that, especially considering that the market price rose substantially since the earlier transaction.

Mr.Falcone’s financial and legal problems stem from a multi-billion dollar commitment he made to the wireless network, LightSquared. The business failed to get regulatory approval for its network and went bankrupt.

Thereupon Mr. Falcone denied most redemption requests from his funds, freezing assets for four years or longer, and tried to raise money by creating Harbinger Inc.

The SEC charged that he engaged in illegal trades, used clients’ money to pay his personal income tax and gave favorable redemption terms to certain investors to get their consent to restrict the redemption rights of others.

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One Response to “Falcone Forced to Sell Harbinger Cheap”

  1. Falcone Harbinger Deal Below Market Price | HedgeFundSmarts Says:

    […] a previous transaction, he sold at $6.50 per share to the holder of a buy option, probably a brokerage or hedge fund such as Leon Cooperman’s Omega from which he borrowed […]

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