SEC On a Roll: Secures Tougher Settlement Against Hedge Fund Trader

SEC On a Roll: Secures Tougher Settlement Against Hedge Fund Trader

The Securities and Exchange Commission (SEC) continues to show it means business. This month, the agency secured its first admission of wrongdoing under its tougher settlement policy.

As we have previously discussed on this Business Law Blog, the SEC recently announced it was moving away from its long-standing practice of settling cases on a “neither admit nor deny basis.”  The SEC indicated that admission of wrongdoing would be sought “where heightened accountability or acceptance of responsibility through the defendant’s admission of misconduct may be appropriate.”

Hedge fund manager Philip Falcone is the first member of the securities industry to admit wrongdoing under this new policy. Falcone initially secured a much more lenient settlement agreement with the enforcement division, but the Commission rejected it under the new leadership of SEC Chair Mary Jo White.

The new settlement imposes a five-year ban from the industry and orders Falcone and his advisory firm, Harbinger Capital Partners, to pay monetary penalties of $18 million for engaging in market manipulation.

“Falcone and Harbinger engaged in serious misconduct that harmed investors, and their admissions leave no doubt that they violated the federal securities laws,” said Andrew Ceresney, Co-Director of the SEC’s Division of Enforcement.

The settlement arguably bolsters the SEC’s efforts to revamp its image as a tough enforcement watchdog, and establishes a clear precedent that admissions of wrongdoing will be required. Whether other individuals and companies will admit to wrongdoing or take their chances at trial remains to be seen, but there are some big cases in the pipeline, including SAC Global Advisors and JPMorgan Chase.

If you have any questions about this case or would like to discuss the legal issues involved, please contact me, Jay Surgent, or the Scarinci Hollenbeck attorney with whom you work.