WSJ: MN-Born Billionaire Under SEC Investigation

The Wall Street Journal reports that Philip Falcone, a Minnesota native, and his New York-based investment firm are under investigation by federal authorities.

Philip Falcone, a Minnesota-born investor and founder of a prominent private investment firm, is reportedly the focus of criminal and civil investigations regarding whether his hedge fund properly reported a $113 million personal loan that he received.

The Wall Street Journal reported Saturday that both the Securities and Exchange Commission (SEC) and Manhattan's U.S. Attorney's Office are probing Falcone's firm, New York-based Harbinger Capital Partners, to determine whether it misled investors by failing to report Falcone's loan in a timely fashion.

According to the report-which cites only unnamed sources “familiar with the matter”-authorities are also investigating whether the firm gave preferential treatment to certain clients when they withdrew funds.

Tuesday calls seeking comment from Harbinger Capital were not immediately returned.

Falcone told the Wall Street Journal that the firm “did not give preferential treatment to any investor.”

He told the paper that the personal loan was appropriately disclosed in the firm's audited financial statements for 2009. He also said that he has paid back more than $70 million of the loan, of which the remaining balance is due in 2014.

He refused, however, to comment on whether he or the firm has been contacted by investigators, and it's unclear if any legal action will be taken.

Falcone said that the loan has been profitable for the fund's investors, as it was backed by his holdings in the fund. Falcone reportedly has about $2 billion of his own money invested in the firm.

The investigations are examining whether investors were informed at the time when Falcone borrowed the funds and if the loan might have increased the risk of losses without clients being aware of the matter.

Citing unnamed sources, the report also states that Harbinger Partners' assets have dropped from $26 billion in 2008 to about $9 billion currently-and its main fund has dropped in value by about 15 percent this year. Also, significant clients, including Goldman Sachs Group, Inc., and Blackstone Group, have reportedly “put in withdrawal requests.”

Falcone, who is originally from Chisholm, played hockey at Harvard University. According to Minnesota Wild spokesman Bill Robertson, Falcone is a part-owner of the franchise. Robertson said that the team is not commenting on whether the reported financial investigation will affect Falcone's stake in the team.