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DealBook: S.E.C. Looks at Harbinger’s Dealings With Goldman

December 10, 2011 by Leave a Comment

Philip Falcone, the head of Harbinger Capital Partners.Jessica Rinaldi/ReutersPhilip A. Falcone, the head of Harbinger Capital Partners.

Harbinger Capital Partners, the hedge fund founded by Philip A. Falcone, could face civil action stemming from a federal investigation into whether the firm gave preferential treatment to Goldman Sachs, and other potential misdeeds.

Mr. Falcone received a Wells Notice from the Securities and Exchange Commission on Thursday, according to a regulatory filing by Harbinger. The agency typically takes such action when it is planning enforcement proceedings against a firm or individual. The notices were also sent to Omar Asali, Harbinger’s president, and Robin Roger, the firm’s general counsel.

The inquiry into Harbinger comes amid increased scrutiny for the industry. In recent years, the S.E.C. and other federal authorities have pursued a broad range of cases against hedge funds, taking aim at insider trading and other violations.

The S.E.C has been investigating whether Harbinger agreed in 2009 to allow Goldman to withdraw up to $50 million from the firm, while not striking similar deals with other clients, according to people with knowledge of the investigation who were not authorized to talk publicly. At the time, Harbinger had limited investors from redeeming their assets because of the market turmoil during the financial crisis. Before joining Harbinger, Mr. Asali was co-head of Goldman’s hedge fund strategy group, helping to steer client investments to outside managers, including Harbinger.

The government is also looking at the disclosure surrounding a $113 million personal loan that Harbinger made to Mr. Falcone in 2009, as well as possible market manipulation involving debt securities the firm traded from 2006 to 2008, according to the people.

In its filing, Harbinger said the notices focused on possible “violations of the federal securities laws’ antifraud provisions in connection with matters previously disclosed and an additional matter regarding the circumstances and disclosure related to agreements with certain fund investors.” Harbinger said that it was “disappointed” about the notices, and that it would “vigorously defend against” any formal charges, according to the filing.

A Goldman spokeswoman declined to comment.

With Harbinger already suffering from a wave of redemptions, the firm is taking new steps to limit withdrawals. Starting Dec. 30, Harbinger will bar investors from withdrawing money from four of its funds. Two of its portfolios, the Global Opportunities Breakaway Fund and China Dragon Fund, will still allow redemptions, according to one of the people familiar with the investigation.

Mr. Falcone, who founded Harbinger in 2001, made billions betting against subprime mortgages during the housing crisis. With his new fortune, he and his wife, Lisa Marie Falcone, quickly became prominent figures on the New York social scene. In 2008, Mr. Falcone bought a $49 million home once owned by Bob Guccione, the founder of Penthouse magazine. A year later, the couple announced a $10 million gift to the High Line park in Manhattan, a former elevated train track converted into a public space.

Harbinger, which held more than $26 billion in assets at its peak, has been struggling of late. The firm now manages $5.66 billion.

LightSquared, a wireless broadband company that is Harbinger’s primary investment, has become an albatross for Mr. Falcone.

He started the company in 2010 and planned to create a mobile network with frequencies that were originally used for satellite phones.

Those plans ran into trouble when some studies showed that the proposed network could interfere with global-positioning devices.

In January, the Federal Communications Commission gave LightSquared’s plan tentative approval despite lingering questions about the possible interference.

Senator Charles E. Grassley, a Republican from Iowa, has taken aim at the LightSquared venture and the F.C.C.’s oversight of the plan. In September, a group of lawmakers drafted a letter that questioned certain elements of Mr. Falcone’s plan.

Mr. Falcone has also faced criticism for telling investors this year that redemptions from some of Harbinger’s funds would be paid in shares of LightSquared stock, rather than cash.

“While this does not mean the S.E.C. definitely will take action against Mr. Falcone and his hedge fund, it does show that the S.E.C. staff believes there is sufficient evidence to consider recommending an enforcement action,” Mr. Grassley said of the Wells Notices in a statement Friday. “Now the F.C.C. is faced with the real possibility that it made a multibillion-dollar grant of valuable spectrum to someone who could be charged with violating securities laws.”

Azam Ahmed contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=de51c253b3987c0c095dc63d0f788673

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Political Ad Spending Spurs Local TV Mergers

November 9, 2011 by Leave a Comment

A period of consolidation is under way in local television — and with it, a renewed debate about the implications of merger and acquisition activity on the industry.

A torrent of deals began in September when the Sinclair Broadcast Group bought seven local stations from the Four Points Media Group for $200 million, and it continued in October when the E. W. Scripps Company bought nine stations from McGraw-Hill for $212 million.

Last week, in the single biggest television station acquisition in four years, Sinclair bought eight stations owned by Freedom Communications for $385 million.

Other groups of stations are believed to be on the market now, further signifying that the broadcast business is becoming more attractive to buyers after several painful years. Analysts say private equity firms that bought into the business years ago — like Cerberus Capital Management, which founded the holding company Four Points in 2007 — are ready to sell.

“We really took it on the chin as an industry during the great recession,” said David Amy, the chief financial officer for Sinclair, referring to steep declines in advertising revenue. But what the economy took away, politics may help restore. Television stations are among the biggest beneficiaries of political ad spending — one of the primary reasons for the increase in sales activity. The election cycle of 2012 is expected to be exceptionally lucrative for stations in competitive states.

“Political hot spots have become a key criteria in the selection of acquisition targeting,” said Steve Ridge, the president of the media strategy group at Frank N. Magid Associates, an adviser to local stations. In some medium-size markets — like Des Moines, where the first caucus will be held in January — “the infusion literally changes the balance sheet,” he said.

Sinclair, which became one of the biggest station operators in the United States through its recent acquisitions, says it is contemplating more purchases. “Generally speaking, the industry needs consolidation,” Mr. Amy said, to better compete against cable companies that sell ads and wireless companies that want broadcast spectrum.

Public interest groups, on the other hand, say that consolidation can be detrimental to local communities because new owners sometimes make cutbacks to station staff and expect the remaining staff members to do more with less.

The Sinclair deal last week “shows that local TV consolidation is alive and well,” said Corie Wright, the policy counsel for Free Press, a nonprofit group that ordinarily opposes such deals. Absent meaningful government oversight, “local communities will have fewer and fewer competing and independent local news voices, and more absentee owners programming from afar,” she said.

Groups like Free Press say that quality and diversity on local TV stations matters because the newscasts by those stations are the biggest sources of news for most Americans.

A report by the market research firm SNL Kagan said that the third quarter of the year brought a “huge increase” in television station deal volume, more than the two previous quarters combined. The report noted, however, that there were still some “troubled and failing station groups.” One such group of four stations, Roberts Broadcasting, filed for bankruptcy last month.

Broadly speaking, stations are worth about half as much as they were a decade ago, when prices peaked, estimated Robin Flynn, a senior analyst for SNL Kagan, who said there was a “pent-up supply of stations for sale.”

Along with the help from political ads, stations are also becoming more attractive to buyers because they are raising money, in the form of retransmission payments, from the cable and satellite distributors that retransmit their signals to subscribers. Mr. Amy of Sinclair said that owning more stations was advantageous in the negotiations with distributors. Acquisitions of stations are regulated by the Federal Communications Commission, which is completing a review of its broadcast ownership rules. Such reviews are supposed to take place every four years.

Article source: http://feeds.nytimes.com/click.phdo?i=aaaf1e0fe2c1f91a9bf660adf3c4462d

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Memo to Exxon: Business With Russia May Involve Guns and Balaclavas

September 1, 2011 by Leave a Comment

A day after Exxon, the American oil giant, struck a strategic alliance with Russia’s state-owned oil company, police agents in Moscow staged a vivid reminder of what can happen to foreign petroleum partners that get on bad terms with the government.

Commandos armed with assault rifles raided the offices of the British oil company BP on Wednesday, in one of the ritual armed searches of white-collar premises that are common enough here to have a nickname: masky shows (so-called because of the balaclavas the agents often wear, although this time they reportedly burst in bare-faced.)

Whether the Russians intended to send a signal or not, the episode seemed to serve notice to Exxon that, when it comes to dealing with the state-run business world of Prime Minister Vladimir V. Putin, Exxon isn’t in Texas anymore.

“That incident, I’m sure, made Exxon very uncomfortable the day after they signed their deal,” Matthew Lasov, director of research at Frontier Strategy Group, a consultancy for companies operating in the developing world, said of the raid.

Exxon, though a spokesman, declined to comment.

BP, during its long involvement in Russia, has had so many police run-ins that its stock price often nudges up or down in response to raids or the arrests of employees. Russian oil and natural gas accounts for about a quarter of BP’s output — about the same portion as from the company’s fields in Alaska and the Gulf of Mexico.

Until now, Exxon’s involvement in Russia has not been as extensive as BP’s. But that could change, based on the joint venture deal Exxon signed Tuesday with the state company Rosneft to explore for oil in the Russian sector of the Arctic Ocean and in the Black Sea. Rosneft, in turn, is to gain access to Exxon operations, including oil fields in Texas and the Gulf of Mexico.

Partner beware was the watchword Wednesday in a note to clients by the Eurasia Group, another risk analysis organization.

“The politics of the Russian energy sector remain treacherous, as the 31st of August raid on BP’s Moscow office demonstrates,” the note said. Exxon, it said, “will now be deeply engaged in those politics for many years.”

Wednesday’s BP raid stemmed from a lawsuit filed by minority shareholders of the company’s Russian joint venture TNK-BP. They contend BP damaged their stock’s value by entering into a deal earlier this year with Rosneft that unraveled after opposition by the main Russian partners in TNK-BP. That debacle was an embarrassment to Prime Minister Putin, who had originally blessed the BP-Rosneft deal.

An arbitration court, a type of Russian civil court, in the Siberian city of Tyumen authorized Wednesday’s search of the Moscow offices, according to both BP and a lawyer for the minority shareholders. The target of the search was apparently documents subpoenaed in the lawsuit, which BP had balked at surrendering, according to Vladimir Buyanov, a BP spokesman.

The agents who raided BP’s offices on the 17th and 18th floors of the Lotte Plaza, a high-rise on Moscow’s Garden Ring, wore commando-style uniforms with yellow shoulder patches saying “Special Forces,” according to BP employees.

The agents were escorting two investigators from the Russian federal bailiff service, who were not armed. The police ushered employees out, and began rifling through papers.

Despite the assault rifles, “there was no great panic,” one BP employee said. “I was able to come up and get my keys” even after the armed men arrived.

The employee, who insisted on anonymity, described the armed police as polite and not overtly intimidating. “They were just a group of comrades with the badges of special forces, in black outfits, with assault rifles — nothing extraordinary.”

One policeman “slightly” pushed an employee with the butt of a rifle, to encourage him to get out of his chair faster, according to two employees who were present.

“We believe that these legal actions are without merit and appear to be part of a pressure campaign against BP’s business in Russia,” Jeremy Huck, the president of BP Russia, said in an interview.

It is not the first time BP has been the star of a masky show.

In 2008, the Federal Security Service, a successor agency to the K.G.B., arrested an employee in the headquarters of the TNK-BP venture, just up Arbat Street from the BP offices, on charges of industrial espionage that were later dropped.

That same year, labor and immigration authorities stripped visas and work permits from BP’s expatriate executives — including Robert Dudley, who was then the director of TNK-BP and is now BP’s chief executive. Mr. Dudley was compelled to leave Russia and run TNK-BP from an undisclosed location.

Whatever the legal issues, and the relative merits, foreign businessmen in Moscow have for years implored the government to refrain from conducting such raids in white-collar cases. Their protests have had little effect.

In February, masked and armed law enforcement agents raided Deutsche Bank’s main office in Moscow, looking for documents related to a commercial mortgage.

In November, masked police officers armed with automatic weapons raided a bank belonging to the billionaire Aleksandr Y. Lebedev, a part owner of the national airline Aeroflot.

“It’s fine to do business there,” Mr. Lasov, the risk consultant, said in a telephone interview from Washington. “But you should do business with those sorts of expectations.”

Olga Slobodchikova contributed reporting from Moscow.

Article source: http://www.nytimes.com/2011/09/01/business/global/bp-russia.html?partner=rss&emc=rss

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