Philip Falcone is cooked as a hedge-fund manager, and he doesn’t seem to care. According to Dealbreaker, when the Securities and Exchange Commission (SEC) told him this summer he was barred from the industry for five years, Falcone said, “Screw your five, make it 10.”
In fact, some Wall Street insiders think the overnight billionaire from Chisholm has long been frustrated with hedge funds and the needy, trigger-happy investors that come with them.
“The truth of the matter is, his heart hasn’t been in money managing for a long time,” wrote Dealbreaker executive editor Bess Levin in August. “Now that he’s free of distractions, he can focus on his one true passion project.”
That project is LightSquared, a company that, if it ever gets going, would be the nation’s first wholesale wireless network. But that’s a very big “if.”
If LightSquared fizzles or is sold off piecemeal, Falcone still has Harbinger Group, his diversified holding company. But even that isn’t a sure thing. Jake “Jaws” Zamansky, the high-profile securities attorney and Forbes columnist, filed a class-action suit against Falcone in February 2012. It alleges that he essentially tried to use a distressed-debt hedge fund to bankroll a tech start-up (LightSquared).
On August 30, the New York Post reported that Falcone’s hedge investors were “eyeing ways to unlock value in the holding company’s assets.”
Indeed, there may come a day when the most successful vulture-fund manager of a generation sees his own financial bones picked clean by ex-investors.
Philip Falcone was born on Bastille Day 1962, the grandson of a Yugoslav immigrant who dug iron ore in a Minnesota mine for nearly 40 years. When Falcone was six, his father, the Chisholm water superintendent, was indicted of misuse of public money. (He had city employees do remodeling work on the mayor’s cabin and partially furnished it with city funds.)
Henry Falcone decided to start fresh in Iowa, but his wife, Caroline, didn’t go with him. She stayed in Minnesota to raise young Philip and his eight older siblings by herself. Like many kids with hard-luck home lives, he found serenity in sports, banging around hockey pucks for hours until the rink lights went out. Philip was gifted on the ice and led the Chisholm High School Blue Streaks on a 12-game winning spree in 1979 that caught the eyes of college recruiters.
It was hockey that gave Philip his first break. He was recruited to play for the Harvard Crimson, getting not only a discounted Ivy League education and a collegiate hockey career, but all the ultra-important contacts that turned a tough kid from the Iron Range into a Wall Street insider.
His next big break came in 2001. After 16 years of trading high-interest junk bonds on Wall Street, Philip got a $25-million investment from Alabama-based Harbert Management Corporation to start a “distressed” hedge fund, an elegant name for a vulture fund. (Distress investors buy troubled or risky businesses then agitate for management change or profit-yielding mergers.)
Five years later, he got a third stroke of luck. In early 2006, Philip started buying bonds of down-and-out homebuilding suppliers, thinking that mergers would eventually yield nice profits. But industry people on the ground told him it wasn’t reality, that the homebuilding market was soft despite the high-flying real-estate market.
Philip took this as an omen of truth and did a little digging of his own, eventually converting himself to the idea that the housing market was just about to tumble over a cliff thanks to subprime lending. He dumped all of his housing-related holdings and aggressively bet against any mortgages that were dallying in subprime. Then, in 2007, it all happened just as he had predicted.
Philip was an overnight billionaire and didn’t waste any time pulling together the trappings of true wealth. He bought himself a Gulfstream V private jet, a $39-million oceanfront estate in the French West Indies and the $49-million former Manhattan home of Penthouse Publisher Bob Guccione, one of the largest private homes in New York City. He also bought 30% of the Minnesota Wild hockey team, becoming the eighth billionaire owner of a hockey franchise.
Out of this money and publicity deluge emerged the story of a most fascinating woman: Lisa Maria (Velasquez) Falcone, Philip’s wife and the mother of his twin daughters, Liliana and Carolina, now eight. Born in Spanish Harlem to a Puerto Rican single mom, Lisa Maria was working as a model when she met Philip at a carefully arranged mixer for Wall Streeters and gorgeous women. (Though now a little over-plasticized at 49, Lisa could still be a Natalie Imbruglia look-alike.)
The couple met in 1992, a year after Philip defaulted on a hairbrush company he had bought out of a bankruptcy court. Lisa Maria often tells reporters that the duo slept on an air mattress in a crummy apartment when they first got together. The timing works so that the story is very possibly true.
Philip’s money tsunami allowed Lisa Maria to blossom into a true eccentric, a kind of El Barrio Liberace in wild couture and spindle-thin, seven-inch heels. Even more than Philip, with his hockey hair and tea-shade glasses, it is Lisa Maria who has captured the imagination of the media elite with her taste for all things wacky. Among the juiciest tidbits: She hired little people to act as waiters at a Wizard of Oz–themed birthday party for the twins. She has a full bar in her closet. She has a pet potbellied pig who is trained to play the piano. And she was once spotted playing soccer in Central Park in a full-length Lanvin gown. W did a big spread on Lisa Maria in 2010, and Vanity Fair hired one of its biggest writer/rock stars, Bethany McLean, to profile the Falcones in 2011. New York Magazine is all but a Lisa Maria groupie, breathlessly capturing her every outing, outfit and mishap. (The latest one involves Mrs. Falcone crashing her Mercedes in the Hamptons and being arrested for driving under the influence of alcohol and prescription medication.)
It’s the money that makes them so glittery and outlandish, of course. But even if the fortune gets wiped away by LightSquared, the SEC and the lawsuit, Phil tells people he’s a hockey player and he’s never afraid to drop the mitts — or to start all over.
He echoed that sentiment in a commencement address at Chisholm High School in June: “Don’t regret, take risks, dare to fail,” he told the 39 graduating seniors. “Just don’t forget to get yourself back up by those bootstraps.”
Philip Falcone’s Wild Ride
July 14, 1961
Is born in Chisholm, the last of Henry and Caroline Falcone’s nine children.
Leads the Chisholm hockey team on a 12-win streak, culminating in a 6-5 defeat of Grand Rapids, the Minnesota hockey powerhouse.
Enters Harvard University to play forward on the hockey team.
Reaches the NCAA championship game with his Harvard Crimson, but the Wisconsin Badgers take the big prize, 6-2.
Graduates from Harvard with a degree in economics.
Signs with the Malmö Redhawks, in Sweden’s second-highest hockey league.
Sustains a thigh injury and leaves the Redhawks. Gets a job at Kidder, Peabody & Co. trading junk bonds.
With a buddy, buys AAB Manufacturing, a troubled consumer-products company.
Loses everything, including electricity in his apartment, when AAB defaults.
Starts trading junk bonds again, this time at First Union Capital Markets.
Begins as a trader at Gleacher Natwest. Marries a former model from Spanish Harlem, Lisa Maria Velasquez.
Starts as a trader at Barclays Capital.
Harbert Management Corporation invests $25 million with Philip to launch a new hedge fund, the Harbert Distressed Investment Master Fund.
Buys $25 million worth of convertible bonds in an Australian mining company; later sees his invest grow to $3.7 billion. Purchases a New Jersey–based soda ash producer out of bankruptcy court; later sells it to an Indian company for a $500-million profit. Buys stock in SkyTerra, a satellite and radio communications company.
With $5 billion under management, enjoys gangbuster success. Changes the name of his fund to Harbinger Capital Partners.
Bets heavily against HBOS and other high-flying subprime lenders.
The subprime mortgage crash balloons Phil’s fund by 114%, earning him a personal return of $1.5 billion.
Buys 20% of the New York Times Company.
With Lisa Maria, buys Penthouse Publisher Bob Guccione’s townhouse in Manhattan for $49 million, a residence designed to look like the set of Caligula. They immediately begin a $10-million renovation.
Signs on as minority owner of the Minnesota Wild hockey team.
Harbinger manages $26 billion, becoming one of the largest hedge funds in the world. At the same time, investors begin pulling out their money due to widespread market anxiety. In 2008, Harbinger returns $9.5 billion to investors.
Takes a $113-million loan from his hedge fund to pay his taxes. Puts together an ownership group, Northern Lights Hockey, to rebuild the Dubuque, Iowa, hockey franchise.
Sells his share of the New York Times Company for less than half of what he paid.
Harbinger manages $9 billion, down considerably from 2008. Phil completes the buyout of SkyTerra, renames it LightSquared and invests $3 billion to get it off the ground.
Gets a critical waiver from the Federal Communications Commission to move ahead with LightSquared.
An Air Force commander testifies before a House committee that LightSquared would interfere “with virtually every GPS receiver out there.”
Vanity Fair profile calls the Falcones a real-life version of The Great Gatsby.
Lawyer Jake Zamansky files a civil suit in Manhattan federal court against Phil and Harbinger, claiming he breached his fiduciary duty by investing 60% of the fund in LightSquared. Zamansky represents former investors who say they lost $2 billion on LightSquared.
LightSquared files for bankruptcy.
The Securities and Exchange Commission (SEC) files civil charges against Phil, alleging he took a loan from his hedge fund to pay a personal tax bill.
Lisa Maria crashes her 2004 Mercedes in Bridgehampton, Conn. She is charged with driving under the influence of alcohol and prescription drugs.
May 9, 2013
Harbinger announces in a quarterly report that Philip has reached a tentative deal with the SEC to pay an $18-million fine and not work as an investment adviser for two years.
July 19, 2013
The SEC votes down the settlement; the chair says the agreement is “not tough enough.”
August 9, 2013
Harbinger sues Deere & Company, Garmin International, Trimble Navigation, the U.S. GPS Industry Council, and the Coalition to Save Our GPS, alleging
August 6, 2013
Harbinger sues Charles Ergen and Dish Network, claiming he is colluding with another hedge fund to wrestle away control of LightSquared.
August 19, 2013
Harbinger Capital and Phil agree to admit wrongdoing in a settlement with the SEC. He pays an $18-million fine and is banned from working as an investment adviser for five years.
Philip Falcone’s Empire
African Medical Investments: private hospitals in Mozambique, Tanzania and Zimbabwe; Harbinger Capital Partners has majority interest.
Asian Coast Development: vacation resorts and casinos in Vietnam; Harbinger Global Corp. has controlling interest.
Augere: Bangladesh telecom start-up; Harbinger Capital Partners is principal shareholder.
EXCO Resources: Harbinger Group has 75% stake in the company’s oil and natural-gas assets.
Ferrous Resources: Brazilian mining company; Harbinger Global Corp. has controlling interest.
Fidelity & Guaranty Life Insurance Company: subsidiary of Harbinger Group.
Five Island Asset Management: subsidiary of Harbinger Group.
Frederick’s of Hollywood: racy lingerie; Harbinger Group has controlling interest.
FrontStreet Re: Bermuda-based life and annuity re-insurer; subsidiary of Harbinger Group.
Manischewitz Company: matzo, egg noodles and other Jewish foodstuffs; Harbinger Capital Partners has controlling interest.
Old Mutual US Life Holdings: acquired by Harbinger Capital Partners.
Salus Capital Partners: asset management company; loan commitments include dELIA*s, Hyde Park Jewelers, Kitson, Mitchell Gold + Bob Williams, and Scott Kay jewelry; subsidiary of Harbinger Group.
Skywater India: clean-water technology; Harbinger Capital Partners has 49% stake.
Spectrum Brands: consumer products including Rayovac batteries, Black & Decker appliances, Stanley Hand Tools, Kwikset locks, and Hot Shot bug killer; subsidiary of Harbinger Group.