All tease Falcone

15 November 2010 By Richard Beales Follow @richardbeales1

The Harbinger hedgie borrowed $113 mln from one of his funds when investor withdrawals were restricted. His lawyers may have OK’d the loan, but it raises questions and it’s no wonder federal authorities are now taking a look and some investors are losing faith.

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Hedge fund Harbinger Capital Partners is being probed by federal authorities looking into whether the firm gave illegally preferential treatment to Philip Falcone, its founder, and some clients, the Wall Street Journal reported on Nov. 12.

Among other things, the authorities are looking into whether a $113 million personal loan made by Harbinger's funds to Falcone was disclosed soon enough, the paper said.

Falcone, who oversees about $8 billion at Harbinger, denied the allegations.

"We have never given preferential treatment to any of our investors ever," Falcone told Reuters in an email. "To think that we would do something like that is grossly false and misleading."

Falcone added: "Furthermore, the loan was documented and drafted by outside legal counsel who advised us. ... The loan had been disclosed in our audited financials." The loan was first reported by Bloomberg in September.

Investors including Goldman Sachs, the Blackstone Group and a New York pension fund have requested redemptions from Harbinger funds, according to news reports. Falcone has assured clients there are no issues with the firm's ability to meet redemptions, the Financial Times reported last week.

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Among other things, the authorities are looking into whether a $113 million personal loan made by Harbinger's funds to Falcone was disclosed soon enough, the paper said.

Falcone, who oversees about $8 billion at Harbinger, denied the allegations.

"We have never given preferential treatment to any of our investors ever," Falcone told Reuters in an email. "To think that we would do something like that is grossly false and misleading."

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