Unstructured Finance

LightSquaredHarbingerCapital Inc.

By Matthew Goldstein

It’s no secret that LightSquared and Phil Falcone’s Harbinger Capital Partners long have been joined at the hip–especially since the $5 billion hedge fund is the wireless telecom’s biggest equity investor. And a recent financial statement for the Falcone-backed start-up makes it clearer than ever just how closely linked are the fortunes of LightSquared and Harbinger.

As we reported, the LightSquared document reveals that on July 1 the company got $263.8 million in new financing, of which $183.8 million came from hedge funds controlled by Harbinger and Falcone. The hedge fund is getting 2.9 million in warrants to purchase additional shares in LightSquared, which is facing the prospect of running-out of cash during the second-quarter of 2012.

On July 5, LightSquared issued a press release trumpeting that it had just secured $265 million in additional financing. The press release said the “capital was drawn from both existing investors as well as new investors in the company.” But it made no mention that more than 60 percent of the new source of funds was coming from Harbinger-controlled hedge funds. (The other unnamed “lenders” also got 1.3 million warrants to buy LightSquared shares).

Now maybe everyone assumed that Harbinger was once again the deep-pocket for LightSquared. But the press release gave the impression that the company was making headway in expanding its investor base.

The July 5 press release also came at a critical time for LightSquared as it had just secured a long-term networking deal with Sprint. The financing news also came as complaints about how LightSquared’s broadcast spectrum interfered with GPS devices began to mount.

Hedge funds against Obama

By Jennifer Ablan and Matthew Goldstein

Class warfare has been the topic du jour this year and is likely to be a major theme of the 2012 election. In a speech two weeks ago, President Barack Obama blasted his Republican foes and Wall Street as he portrayed himself as a champion of the middle class.

In a speech meant to echo a historic address given by former President Theodore Roosevelt in the same Kansas town more than 100 years ago, Obama railed against “gaping” economic inequality and pressed the case for policies he insisted would help ordinary Americans get through hard times.

Not surprisingly, some hedge fund managers were none too pleased.

In fact, hedge-fund industry titan Leon Cooperman “front-ran” Obama’s populist speech by widely circulating an “open letter” to Obama, arguing that “the divisive, polarizing tone of your rhetoric is cleaving a widening gulf, at this point as much visceral as philosophical, between the downtrodden and those best positioned to help them.”

Gross miscalculation?

By Jennifer Ablan and Matthew Goldstein

It appears that Bill Gross’s PIMCO Total Return Fund is losing ground with investors — just not as fast as we originally thought.

Morningstar, the mutual-fund tracker, initially told us that PIMCO’s flagship fund had suffered $17 billion in net outflows over the last 12 months. It turns out Morningstar discovered this morning that it miscalculated and the figure actually is $10.3 billion.

That’s slightly better news for Gross but the trend still holds that the fund is seeing  a steady stream of outflows. Morningstar estimates that in October and November of this year, PIMCO Total Return fund has seen $1.69 billion in customer redemptions.

Steven Cohen reenactment theater

By Matthew Goldstein and Jennifer Ablan

In the end, one of the more memorable takeaways from the Steve Cohen deposition we unearthed is the feud between the lawyers over what to call the billionaire hedge fund manager: “Stevey” or “Mr. Cohen.”

Bess Levin at Dealbreaker.com used a her unique wit to deconstruct the verbal dispute between Cohen attorney Marty Klotz and Fairfax Financial lawyer Mike Bowe.  And now CNBC’s David Faber weighs in with his own retelling of the verbal jousting. (see video clip here).

And yes, we agree with Squawk on the Street host Melissa Lee that we need to see a visual reenactment as well–since it’s unlikely anyone is going to get the videotaped version of the deposition anytime soon. But we’ll try.

Steven Cohen in his own words

By Matthew Goldstein and Jennifer Ablan

The thing about deposition excerpts—even lengthy ones—is that some of the tantalizing material gets left on the cutting room floor. And that’s certainly the case with hedge fund billionaire Steve Cohen’s two-days worth of  testimony in the long-running Fairfax Financial litigation.

Now don’t get us wrong—there is plenty of great and illuminating stuff in the 242 pages of deposition testimony Reuters obtained through a court motion to unseal documents in the civil lawsuit. As we noted in our story, Cohen is pressed at great length for his views on insider trading—he thinks the laws are “vague”. And as we highlighted in our blog, there’s even an amusing little feud between the lawyers over how the SAC Capital founder should addressed.

Still, it makes you wonder what was said by Cohen in the more than 400 pages of deposition transcript that wasn’t unsealed. And we’d love to see Cohen on videotape as sometimes body language can be revealing.

Stevie Cohen Unplugged

By Jennifer Ablan

Steven A. Cohen, one of the world’s most successful and secretive billionaire hedge fund managers, shared some of his thinking on insider trading, something his worst critics have alleged SAC Capital knows a thing or two about.

Cohen in sworn deposition testimony earlier this year, an extended excerpt of which was obtained by my prolific colleague and partner-in-crime Matthew Goldstein, said: ”The way I understand the rules on trading on inside information, it’s very vague.”

Cohen added: “It’s my belief that the idea of material nonpublic informing could be interpreted differently, depending on which side of the transaction you’re on.” At one point, the 55-old-trader loses his cool a bit with Fairfax’s lawyer, Michael Bowe, commenting: “Well, you know, we’re having this conversation for about three hours about what’s material and whatnot. It’s pretty clear that you and I have a different view on it.” 

Bad data II

By Matthew Goldstein

Bad data continues to confound the U.S. government in its measurement of the economy, with the Federal Reserve Bank of New York noting it too has been a victim.

In the Fed’s most recent report on outstanding consumer debt, the nation’s central bank said it recently discovered it had been underestimating the total dollar amount of student loan debt for a number of years. In the report, the NY Fed said some of the under-counting may have stemmed from the methodology used by one of its vendors.

The Fed said it has fixed the problem, which was a significant one. The Fed says it may have been under-estimating outstanding student loan debt by some $290 billion.

Phil Falcone’s ray of sunshine

By Matthew Goldstein

Leave it to Phil Falcone to find a glimmer of good news to relay to the beleaguered investors in his Harbinger Capital Partners. A day after U.S. securities regulators threatened to sanction the billionaire hedge fund manger for alleged trading irregularities, Falcone told investors in his roughly $4 billion firm that not all is lost.

In a note emailed to investors the day after Falcone officially learned the U.S. Securities and Exchange Commission is considering charging him with a number of securities law violations, the former Harvard hockey star told them that nothing the SEC is looking at involves his beloved LightSquared.

Additionally, it is important to note that neither Harbinger Group Inc. (“HRG”) nor LightSquared were the recipient of a Wells Notice, nor was either involved in any of the events being investigated.  Moreover, the Wells Notices received by HCP and certain affiliates are not related to any of the HCP funds’ investments in HRG, LightSquared or their predecessors.

MF Global: gross negligence or intent

By Matthew Goldstein

There was plenty of theatrics Thursday when Jon Corzine returned to his old stomping ground–Capitol Hill–to offer an apology and a mild defense for the events that led to the collapse of MF Global. But in the end little light was shed on just what happened during those final days of October, as Corzine’s firm spiraled towards bankruptcy and hundreds of millions dollars of supposedly protected customer money went missing.

Corzine said many times he didn’t know what happened to the money and was shocked as anyone to find out the money was gone. But there is one thing Corzine said that will prove to be the most critical part of his testimony and that’s his assertion that he never intended to do anything wrong. Or more precisely, he never intended to have customer money maintained in segregated accounts transferred to the firm’s own bank accounts.

As anyone who has been following the MF Global saga now knows, the one inviolate rule of the futures industry is that a firm cannot commingle its money with its customers, or take customer money in a segregated account to pay the firm’s bills or debts.

Bad data?

By Matthew Goldstein

The jobs situation is still pretty bad in the U.S. and the nation has a long way to go to make up for the millions of jobs lost during the financial crisis. But today’s job’s report and recent revisions point out that maybe things aren’t as bad as everyone feared just a few months ago.

Remember this summer, when everyone was convinced the U.S. was headed into another recession. The August jobs report seemed to confirm that bleak outlook when the Department of Labor said the nation produced a big fat 0 in terms of new jobs. But now we know that 100,000 jobs were created in August. And the Labor Department says the 103,000 jobs thought to have been added in September was actually 210,000.

The October number also was revised up by 20,000 to 100,000.

So who knows, maybe November’s report, which said the nation added 120,000, will be revised upwards next year when the December jobs reported is released.

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