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SEC charges Falcone with fraud

June 27, 2012: 3:47 PM ET

SEC lays down the hedgie hammer.

FORTUNE -- The Securities and Exchange Commission this afternoon charged hedge fund manager Phil Falcone with illegally using more than $113 million in fund assets to pay personal taxes.

Falcone also is accused of improperly manipulating the price and availability of certain junk bonds via a "short squeeze," favoring certain clients at the expense of others and of engaging in illegal trades related to three different public offerings.

"Today's charges read like the final exam in a graduate school course in how to operate a hedge fund unlawfully," said Robert Khuzami, Director of the SEC's Division of Enforcement, in a prepared statement.  "Clients and market participants alike were victimized as Falcone unscrupulously used fund assets to pay his personal taxes, manipulated the market for certain bonds, favored some clients at the expense of others, and violated trading rules intended to prohibit manipulative short sales."

In a related move, the SEC has settled a civil complaint against Harbert Management Corp. for its role in the aforementioned "short squeeze." Harbet will pay $1 million, without admitting guilt.

Read the entire SEC complaint against Falcone below:

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About This Author
Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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