On June 18, 2013, SEC Chair Mary Jo White announced that the agency would soon begin requiring admissions of wrongdoing from defendants to settle enforcement actions that involved "egregious intentional misconduct" or "misconduct that harmed large numbers of investors." The announcement signaled a departure from the SEC's long-standing policy of allowing defendants to enter into settlements in which they could "neither-admit-nor-deny" the charges against them.

Just two months later, the SEC took its first step under the new policy, announcing yesterday that hedge fund adviser Philip A. Falcone and his advisory firm Harbinger Capital Partners have agreed to a settlement in which they must pay more than $18 million and, more notably, admit wrongdoing.  Falcone will also be barred from the securities industry for at least five years under the agreement.

The SEC brought its case against Falcone and Harbinger in June 2012 alleging misappropriation of client assets, market manipulation, and betraying clients. Specifically, the SEC alleged that Falcone used hedge fund assets to pay his own taxes, conducted an illegal “short squeeze” to manipulate bond prices, secretly favored certain customers at the expense of others, and unlawfully bought equity securities in a public offering after having sold short the same security during a restricted period. Then-Enforcement Director Robert Khuzami remarked at the time that the SEC's charges "read like the final exam in a graduate school course in how to operate a hedge fund unlawfully.”

In May 2013, Harbinger Group filed a Form 10-Q stating that Falcone and several of the Harbinger entities involved in the lawsuit had reached a settlement with the SEC that included a two-year bar for Falcone, an $18 million penalty/disgorgement, and no admission of liability. In June, however, in one of her first high-profile moves as SEC Chair, White reportedly rejected the settlement as too lenient.

Under the settlement announced yesterday, which still must be approved by the U.S. District Court for the Southern District of New York, Falcone and Harbinger admitted to a lengthy set of facts supporting the SEC claims. A summary of all of the admissions can be viewed here.

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