SEC Schools Phil Falcone on How to Avoid Raiding $113.2 Million in Client Funds (UPDATE)

The Securities and Exchange Commission filed a long-anticipated complaint against Harbinger Capital founder Phil Falcone today—including charges that Mr. Falcone misappropriated $113.2 million in client funds to pay a personal tax bill. (It hardly helps that Mr. Falcone had prevented investors from withdrawing assets from the same fund, citing potential claims arising from Lehman Brothers’ bankruptcy; or that when Mr. Falcone repaid the loan, he charged himself an interest rate below the fund’s cost of capital.) Anyway, the SEC has some ideas regarding what the hedge fund manager could have done to avoid this embarrassment:

Paid on time:

Asked for a little understanding:

Sold something:

Acted like he cared:

Then again, the $113.2 million in client funds represent but one of the bees in the SEC’s bonnet—the agency also alleged that Mr. Falcone manipulated the price and availability of high-yield bonds, allowed large investors to withdraw funds while locking-up less important clients, and monkeyed around in three public offerings. All of which led SEC Director of Enforcement Robert Khuzami to posit:

“Today’s charges read like the final exam in a graduate school course in how to operate a hedge fund unlawfully.”

UPDATE: Mr. Falcone didn’t seem worried about the complaint in an email to Daily Intel. “Piece of cake,” he said. “It’s not like I’m having a heart transplant.” Lawyer Matthew Dontzin called the charges “not only irresponsible but completely unsupported by any evidence.”

SEC Schools Phil Falcone on How to Avoid Raiding $113.2 Million in Client Funds (UPDATE)