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Philip Falcone, the hedge fund billionaire who ran into trouble after failing to get a green light for his LightSquared 4G network from the Federal Communications Commission, is being fined $18 million by the Securities and Exchange Commission.
The SEC began investigating Falcone last summer, accusing him of engaging “in a fraudulent scheme” to use $113.2 million in assets from his fund, Harbinger Capital Partners, to pay his own taxes, as well as of favoring some customers over others for certain favors.
The New York Times, in a May 9 report, offered the reminder that federal regulators, at the outset of their investigation, described Falcone’s actions as reading “like the final exam in a graduate school course in how to operate a hedge fund unlawfully.”
Since then, regulators had clearly softened toward Falcone, The Times added, calling the $18 million fine “a rounding error to a hedge fund billionaire.”
The SEC also banned Falcone personally from raising capital for two years—according to The Times, a loophole allows the nine investment advisors who work for Falcone to continue along as they were—but allows him to remain CEO and chairman of Harbinger.
Falcone will also personally have to pay $4 million of the fine, with the remainder to come from management fees and not investor money, a source told the Financial Times.
Falcone threw his hat in the 4G ring in 2010, after purchasing satellite-communications company SkyTerra. Its effort was pitched as a $7 billion project to create the nation’s first “wholesale” 4G Long Term Evolution (LTE) network, covering 92 percent of U.S. mobile users by 2015.
The spectrum the network operated on, however, was found to interfere with GPS signals in a way that couldn’t be corrected, the National Space-Based Positioning, Navigation and Timing Executive Committee told the U.S. Commerce Department, to the great ire of Falcone and Harbinger’s then-CEO Sanjiv Ahuja.
Sprint, wanting to transition out of the less-popular 4G technology WiMax, had entered a 15-year, $65 million deal with LightSquared, contingent on its receiving FCC approval. After repeatedly pushing a deadline for the approval, Sprint exited the deal in March 2012, saying it was supportive of LightSquared’s efforts to “find a resolution to the interference issues impacting its ability to offer service on the 1.6GHz spectrum band.”
In May, Falcone filed for Chapter 11 bankruptcy, saying in a statement that it would give him breathing room to resolve ongoing regulatory issues and protect his company from creditors.
Bloomberg estimated at the time that while Falcone managed $26 billion at the height of his fortune, in mid-2008, by mid 2012 he was likely overseeing $3 billion.
Earlier this week, outgoing FCC Chairman Julius Genachowski said he expects that the LightSquared network will eventually win approval, Bloomberg reported May 8. Genachowki is said to have told an investor at a conference in New York that LightSquared’s airwaves are “too valuable” to be left unused.
Genachowski reportedly added, “Clearance will ultimately happen in the L-band for LightSquared. The spectrum will be freed for terrestrial use.”
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Editor’s Note: The headline was corrected to show the fine Falcone faces at $18 million, not $18 billion as an earlier version of this article stated.