An investor has accused the hedge fund billionaire Philip A. Falcone of using his publicly listed company “to bail himself out†after a reaching an $18 million settlement with the Securities and Exchange Commission.
In the weeks after the S.E.C. settlement last August, Mr. Falcone’s hedge fund Harbinger Capital Partners was confronted with a flurry of requests from investors to return their money, according to a complaint filed by a Harbinger Group shareholder, Haverhill Retirement System.
In a desperate attempt to find capital to replace the money flowing out, according to the lawsuit, Mr. Falcone sold some shares in Harbinger Group, where he is chief executive. He later sold additional shares and added two seats to the board of directors, eventually securing a $400 million investment by the Leucadia National Corporation, the suit contends.
By doing so, “Falcone effectively used Company assets to bail himself out of a personal financial crisis,†the complaint said.
The lawsuit is the latest legal hurdle for Mr. Falcone, who agreed to admit wrongdoing and be banned from the securities industry for at least five years to settle market manipulation accusations.
He is currently engaged in a series of legal battles, including one that he brought against the satellite television mogul Charlie W. Ergen, the chairman of Dish Network. Mr. Falcone has accused Mr. Ergen of trying to take control of LightSquared, a bankrupt wireless provider that Mr. Falcone owns.
In the suit filed this week, Haverhill contends that Harbinger Group struck two deals with Leucadia that represented a breach of duty to shareholders by Mr. Falcone and Harbinger Group.
The first deal occurred on Sept. 27, weeks after Mr. Falcone’s settlement with the S.E.C., when Harbinger Group agreed to sell $158 million of its shares to Leucadia, giving it a 9 percent stake in the company.
Leucadia’s chief executive, Richard B. Handler, called the transaction a “classic example of how a unique relationship and extensive existing knowledge can lead to an appealing entry point in a public holding company at a price we find attractive.â€
In the second deal, announced last week, Harbinger Group sold another 23 million preferred shares in funds managed by Harbinger Capital Partners to Leucadia, bringing Leucadia’s stake to 20 percent. Under the terms of that deal, subject to regulatory approval, Leucadia will appoint two directors to the board of Harbinger Group. They are expected to be Joseph S. Steinberg and Andrew Whittacker, who led the first deal with Harbinger last fall.
By appointing two new directors, Harbinger Group diluted the representation of ordinary shareholders, giving small shareholders “less of a voice,†Haverhill claims.
The case is being brought against Mr. Falcone, individual directors on the board of Harbinger Group, entities through which Mr. Falcone and Harbinger Group own shares, as well as Leucadia.
Mr. Falcone declined to comment and a spokesman for Harbinger Group declined to comment. Haverhill was not available to comment.
