Unstructured Finance

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.

Harbinger Group is the publicly traded company Falcone acquired over a year ago, which has served as an dumping ground for some of the hedge fund assets. But Harbinger Group is inconsequential compared to LightSquared, the upstart wireless telecom that Falcone has just about bet all of his investors money on. Falcone’s hedge fund has sunk more than $3 billion in equity into LightSquared and to this day it remains just about the only equity investor in the company.

As we said in a Aug. 2010 special report, the success or failure of Falcone’s hedge fund now rides solely on whether or not LightSquared can get its planned 4G high-speed network off the ground.

Checking BP’s life signs

Lawmakers are blasting Big Oil on Capitol Hill, but most of the execs from Exxon, Conoco, Chevron etc may have more to gain from the slap-down then they stand to lose if you consider the real target of their ire, BP.

For weeks, with its share price scraping the sea bed, BP has been the subject of take-under talk. Every time another politician assigns another zero to the end of the cost of the clean-up, and each call for BP to cut its dividend, puts the British company’s future further into question.

And why wouldn’t BP’s competitors want to see a weakened rival possibly turn up as cheap easy pieces to pick up in forced asset sales?

Goldman’s road to Wellsness

Most free marketers are happy to overlook a certain amount of outsmartiness from investment banks. After all, these are the rocket scientists who made mountains of cash by piling multiple levels of risk on dodgy investments and calling them hedges. Sure, such alchemy blew up in many a face, but the logic behind the free market does have a role to play here. Shorting synthetic CDOs would have ultimately helped force the market to recognize how much hot air was behind the subprime-fueled boom. But by not disclosing a mechanism built to fail — the Abacus CDO in question — Goldman Sachs may have taken too deep a bite out of the hand that feeds it.

When companies are being investigated by the SEC, they get a Wells Notice. They usually tell the markets when they get one. It’s a disclosure thing — you need to be upfront with the market about information that could be material to your results. There is no crime in not telling markets that you’ve received a Wells Notice, so long as the information is not material. But Goldman’s share price is tumbling, and even if it wins its battle with the SEC, Goldman could face angry shareholder charges for not revealing much sooner that it faced potential civil liability.

In those corners of the markets so consumed with conspiracy theory, it’s hard not to notice how close the timing of the charges comes to the debate on Capitol Hill about financial regulatory reform. On CNBC this morning, Democratic Senator Barney Frank dissed the idea of a conspiracy, as he would have been expected to do, but he admitted that the timing of the Goldman explosion helps Democrats’ chances of getting legislation through Congress.

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