UPDATE: Philip A. Falcone and Harbinger Charged with Securities Fraud

The Securities and Exchange Commission today filed fraud charges against New York-based hedge fund adviser Philip A. Falcone and his advisory firm, Harbinger Capital Partners LLC for illicit conduct that included misappropriation of client assets, market manipulation, and betraying clients. The SEC also charged Peter A. Jenson, Harbinger's former Chief Operating Officer, for aiding and abetting the misappropriation scheme. Additionally, the SEC reached a settlement with Harbinger for unlawful trading. Additional Materials SEC Complaint: Harbinger Capital Partners LLC; Philip A. Falcone; and Peter A. Jenson SEC Complaint: Philip A. Falcone, Harbinger Capital Partners Offshore Manager, L.L.C., and Harbinger Capital Partners Special Situations GP, L.L.C. SEC Complaint: Harbert Management Corporation, HMC-New York, Inc. and HMC Investors, LLC SEC Administrative Proceeding In a separate, settled action, the SEC charged Harbert Management Corporation, whose affiliates served as the managing members of two Harbinger-related entities, as a controlling person in the market manipulation. The SEC alleges that Falcone used fund assets to pay his taxes, conducted an illegal "short squeeze" to manipulate bond prices, secretly favored certain customers at the expense of others, and that Harbinger unlawfully bought equity securities in a public offering, after having sold short the same security during a restricted period. "Today's charges read like the final exam in a graduate school course in how to operate a hedge fund unlawfully," said Robert Khuzami, Director of the SEC's Division of Enforcement. "Clients and market participants alike were victimized as Falcone unscrupulously used fund assets to pay his personal taxes, manipulated the market for certain bonds, favored some clients at the expense of others, and violated trading rules intended to prohibit manipulative short sales." The SEC filed actions in U.S. District Court for the Southern District of New York against Falcone, Jenson, and Harbinger, and, in connection with the illegal trading scheme, separately instituted and settled administrative and cease-and-desist proceedings against Harbinger. In particular, the SEC alleges that: Falcone fraudulently obtained $113.2 million from a hedge fund that he advised and misappropriated the proceeds to pay his personal taxes; Falcone and two Harbinger investment managers through which Falcone operated manipulated the price and availability of a series of distressed high-yield bonds by engaging in an illegal "short squeeze;"