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Stay far away from Harbinger Group (HRG)



November 20, 2012 – Comments (2) | RELATED TICKERS: HRG

As someone who has been following and writing about Philip Falcone's public investment vehicle Harbinger Group (HRG) here in CAPS for several years now, I felt obligated to bring the following scathing review of HRG that was recently published by someone called "Shareholder Watchdog" over on Seeking Alpha to everyone's attention.  First a disclaimer that other than in CAPS I have never personally been either long or short HRG.  I just think that there's enough shadiness surrounding Philip Falcone and the Harbinger Hedge Funds that one should stay far away from HRG.

Not only have his funds performed terribly of late, including the now bankrupt venture LightSquared that he put big bucks into, Mr. Falcone is currently under SEC investigation for...

"..engaged in two fraudulent schemes that disadvantaged investors and elevated Falcone and Harbinger's interests above the interests of the funds they advised." The SEC alleges that Falcone misappropriated $113 million from a Harbinger fund in order to pay a personal tax in April 2009. At the time, Falcone was renovating his $49 million Manhattan mansion, "traveled on a private jet, employed body guards and funded his wife Lisa's new career as a film producer." Falcone did not want to use his own assets (which included hockey team investments, a vacation home and art collection), but instead "borrowed cash from one of his Harbinger Capital Partners LLC funds, using his clients' money without their knowledge." In addition, the SEC alleged he provided certain of his large investors like Goldman Sachs with favorable redemption and liquidity terms that enabled him to "impose more stringent redemption restrictions" on other investors."

And that's not the only complaint that is being investigated against him.  There's all sorts of other charges out there.

Combine the relative illiquidity of HRG with the fact that Harbinger's funds might be forced to liquidate its position in the company as one of its few remaining tradable assets, or the fact that it may have to use HRG shares to pay off a loan to Michael Dell's money management arm which might in turn sell shares en masse, or the fact that HRG's other major investment in an indexed annuity business (besides its significant stake in Spectrum Brands) seems to be wildly overvalued in most sum-of-the-parts analysis of the company and it's enough to make me want to stay far away from HRG.  I'm not saying that it's an outright slam-dunk short because the Spectrum position does have tangible, easily calculated value, but I'm not touching this one with a ten foot pole.

Harbinger Group's Sum-of-Parts Does Not Add Up 

Anyhow, I don't have a lot of time, but I felt obligated to bring this information to everyone's attention as this is a stock that I have mentioned in the past...even if it was a long time ago and the stock has gone up significantly since then.

I hope that everyone out there is doing well and has a fantastic Thanksgiving with their families.


2 Comments – Post Your Own

#1) On November 20, 2012 at 5:15 PM, constructive (99.97) wrote:

I think I mentioned Falcone's problems in one of your previous HRG blogs.

The interesting thing is that HRG shot upward (close to fair value?) right in the middle of all that. HRG hasn't seemed to react that much to Falcone's issues.

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#2) On November 20, 2012 at 6:05 PM, constructive (99.97) wrote:

I just remembered another hedge fund I noticed that had an affilliated listed company, like TPNTF, GLRE, BH, SHLD and HRG.  Warren Lichtenstein of Steel Partners is the chairman of Handy & Harman (HNH), an industrial company that looks cheap.

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