LightSquared's Falcone charged with securities fraud

Falcone and his hedge fund, which owns most of LightSquared, have been charged with a range of violations

The hedge fund that owns most of troubled mobile startup LightSquared has been rocked by securities fraud charges filed by the U.S. Securities and Exchange Commission.

The charges filed Wednesday include allegations against hedge-fund manager Philip Falcone, his Harbinger Capital Partners fund, and Harbinger's former chief operating officer, Peter Jenson. They include misappropriation of funds, market manipulation and preferential treatment for favored investors who were allowed to withdraw funds.

The SEC used strong language to condemn Falcone, Harbinger and Jenson.

"Today's charges read like a final exam in a graduate school course in how to operate a hedge fund unlawfully," Robert Khuzami, director of the Division of Enforcement, said in a press release.

LightSquared received conditional approval from the U.S. Federal Communications Commission last January to operate a land-based LTE network using frequencies close to the GPS band. It planned to sell service on that network, as well as on its satellites, on a wholesale basis to other carriers. But in February, the FCC said it would kill the plan because of interference between the LTE network and GPS receivers.

LightSquared has since declared bankruptcy, while continuing to say it is seeking a way to build its network. The company has said the federal government should swap another piece of spectrum for the band that it won't let LightSquared use. The value of LightSquared, which makes up a large percentage of Harbinger's assets, reportedly has plummeted as its plan faced growing opposition from regulators and the GPS industry.

There are three main allegations. First, the SEC says Falcone fraudulently obtained US$113.2 million from the Harbinger fund in order to pay his personal taxes. Second, it says Falcone and two Harbinger entities manipulated the market in a set of high-yield bonds issued by MAAX Holdings. Finally, the SEC charges that Falcone and Harbinger secretly let some large investors take money out of a fund while other investors weren't allowed to.

Other charges against Harbinger and some affiliated companies have already been settled, the SEC said.

Falcone has never been an officer of LightSquared, and he joined the company's board only after the resignation of former CEO and board member Sanjiv Ahuja. But Harbinger itself owns most of the company.

Stephen Lawson covers mobile, storage and networking technologies for The IDG News Service. Follow Stephen on Twitter at @sdlawsonmedia. Stephen's e-mail address is stephen_lawson@idg.com

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Stephen Lawson

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