DealBook suggests that the SEC's charges against Philip Falcone are a harbinger of things to come in the hedge fund industry.
It called it a "warning that funds can now expect the same scrutiny that Wall Street banks and brokerage firms receive. This is perhaps the most prominent enforcement case focusing on how a hedge fund manager treated investors. The SEC accused Mr. Falcone of hiding information from investors, an outside law firm and even his own directors."
The charges are salacious to be sure. One complaint accused Falcone of treating Harbinger Capital "like his own plaything by taking out a 3 million loan to cover his tax liabilities and cutting side deals with outside investors to get their votes."
The second complaint claims that he set up a "short squeeze" on the bonds of a company called MAAX Holdings, which the SEC charges was an attempt to punish a prime broker (with whom he was feuding) that was shorting the securities.
My sense is that the Falcone situation is rather unique. Few hedge fund managers would attempt the sort of shenanigans that the complaints allege. Such shenanigans are even less likely in today's market, in which limited partners hold much more sway. This is a wake-up call for anyone committing egregious acts, but those ranks are surely small.
- here's the article