Harbinger Capital Partners, the hedge fund backing the wholesale LTE venture LightSquared, is being investigated by federal authorities over a $113 million loan taken out by Harbinger founder Philip Falcone to pay personal taxes. The investigation is also looking at whether the fund gave preferential treatment to some investors, according to reports in the Wall Street Journal and Bloomberg.
The reports, citing unnamed sources familiar with the matter, said the Securities and Exchange Commission and the U.S. attorney's office in Manhattan are probing the hedge fund over a $113 million loan Falcone took from Harbinger's funds to pay personal taxes and whether some investors were able to take money out of the fund while others were not allowed to do so.
"The loan has been a topic of discussion since it was disclosed in March," Falcone said in an email, according to Bloomberg. "It was documented and audited by outside accountants and legal advisers and was done in accordance with our documents. As for the preferential treatment for certain clients, that is completely and utterly untrue."
Additionally, Falcone told the Journal that he has paid back more than $70 million of the loan, with the rest due in 2014. He also said the loan has been profitable for investors.
The reports are the latest in a string of speed bumps for the hedge fund, which is supporting LightSquared. Some key investors in Harbinger have submitted withdrawal notices, indicating they may want to exit the hedge fund. Unidentified sources told the Journal last week that Blackstone Group and Goldman Sachs Group are among the investors who have submitted withdrawal notices. Falcone said the fund can handle the redemption requests.
LightSquared has said its wholesale LTE network will allow for terrestrial-only, satellite-only or integrated satellite-terrestrial services (via the terrestrial and MSS spectrum Harbinger scored through a merger in March with satellite operator SkyTerra). The company is planning initial LTE trials in Baltimore, Denver, Las Vegas and Phoenix, with commercial launches planned by the third quarter of 2011. LightSquared, which has access to 59 MHz of spectrum, has said its network will consist of around 40,000 cellular base stations covering 92 percent of the U.S. population by 2015.
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