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Admissions of Wrongdoing in SEC Settlement Lead to Ban From Managing Any New York Licensed Insurer

The New York State Department of Financial Services (DFS) recently announced that hedge fund advisor Philip Falcone (Falcone), and all employees of his firm Harbinger Capital Partners (Harbinger Capital), are banned for seven years from exercising direct or indirect control over Fidelity & Guaranty Life, a New York insurer partly owned by Falcone and Harbinger.

As reported in the Corporate & Financial Weekly Digest of August 30, 2013, Falcone settled two enforcement actions with the Securities and Exchange Commission. The settlements filed with the US District Court for the Southern District of New York were significant because the SEC required Falcone and Harbinger Capital to admit to allegations concerning improper loans, preferential treatment for certain investors and an illegal “short squeeze” of one company’s bonds to punish a financial services firm.

These admissions marked a departure from the SEC’s policy of permitting defendants to settle cases while neither admitting nor denying the relevant factual allegations. The DFS decree illustrates one of the many collateral consequences that may arise from the SEC’s new policy.   

According to DFS, the SEC settlement raised “serious issues” as to Falcone’s fitness to oversee or participate in the management and operations of an insurance company. As a result, DFS ordered that he and all Harbinger Capital employees be banned from such activity for seven years. 

The DFS decree raises the possibility that defendants in SEC enforcement proceedings will be less willing to settle due to the risk of unforeseen collateral consequences arising from SEC settlements with mandatory factual admissions.      

The DFS Announcement is available here.

©2020 Katten Muchin Rosenman LLPNational Law Review, Volume III, Number 287


About this Author

Tenley Mochizuki, Katten Muchin Law Firm, Litigation Lawyer

Tenley Mochizuki concentrates her practice in litigation and dispute resolution matters.

While attending law school, Tenley participated in the Advocacy for the Elderly Clinic and worked on the Virginia Environmental Law Journal. Before joining the firm, she worked in a medical office, a primate cognition laboratory and various nonprofit organizations.