FCC Political Favor for Lightsquared ? ~ Archive ~ See, that was the plan but it did not work out. NOT Productive Enough I Guess.

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Will FCC's Political Favor for LightSquared Result in GPS Interference?

Submitted by Ken Boehm on Tue, 03/01/2011 - 09:31

Under extremely unusual circumstances, the Federal Communications Commission (FCC) recently granted a company called LightSquared the right to use wireless spectrum to build out a national 4G wireless network. LightSquared will get the spectrum for a song, while its competitors have to spend billions.

Although the technical implications of the FCC action are complicated, how it came about is not. LightSquared is owned by the Harbinger Capital hedge fund, headed by billionaire investor Phil Falcone, in photo. Falcone visited the White House and made large donations to the Democratic Senatorial Campaign Committee.

When established regulations and procedures are circumvented for political reasons, the result is often unintended consequences. When the Obama FCC appointees did the favor for Falcone, they probably had no idea that they might be creating severe technical problems for other users of wireless spectrum.

Now the Global Positioning System (GPS) industry is up in arms. According to a statement issued by a new group called The Coalition to Save GPS:

LightSquared plans to transmit radio signals that would be one billion or more times more powerful than GPS signals as received on earth, potentially causing severe interference and rendering useless millions of GPS receivers - including those used by U.S. Federal and Local Government agencies, first responders, airlines, agriculture, and everyday consumers in their cars and on hand-held devices.

The statement references the unusual nature of the FCC action:

The usual FCC process is to conduct extensive testing followed by approvals. For LightSquared, the process was approve first, then test.

On February 2, NLPC asked the House Committee on Oversight and Government Reform, chaired by Reps. Darrell Issa (R-CA) and Edolphus Towns (D-NJ) to investigate the 'pay to play' appearance of the FCC action. The full text of our letter appears below.

Dear Chairman Issa and Congressman Towns:

As chairman and ranking member of the Committee on Oversight and Government Reform, your committee has a special responsibility to oversee ethics matters with federal policy implications. There are few issues more important today than reinforcing Americans' faith in government at all levels and particularly the high ethics standards the Obama Administration set forth two years ago.

Unfortunately, those ethics standards may have been called into question recently regarding federal wireless communications policy. This letter brings to your attention a series of odd procedural decisions at an independent regulatory agency - the Federal Communications Commission (FCC) - that appear to have been undertaken solely for the financial benefit of one individual. As outlined in further detail below, these process decisions, series of contacts, apparent appearances of impropriety, and potential conflicts of interest seem to reveal improper influence peddling before the Executive Branch, Office of Science and Technology Policy (OSTP), and the Federal Communications Commission.

Background

As you may know, the National Legal and Policy Center was among the first to disclose revelations that Andrew McLaughlin, the former White House Policy Advisor at OSTP, was secretly communicating through his private Gmail account with his former employees at Google about public policy issues affecting the company.

In the course of our research, we conducted a thorough review of visits to OSTP by industry leaders. As a consequence of our analysis of White House visitor records and meetings with OSTP officials, we have found another potentially troubling ethics issue concerning Phil Falcone, Harbinger Capital Partners, and Mr. Falcone's wireless venture, LightSquared.

Phil Falcone, the founder of a hedge fund known as Harbinger Capital Partners is currently under criminal and civil investigations by the Securities and Exchange Commission and U.S. Attorney's Office in Manhattan for allegedly failing to disclose $113 million in personal loans he took from his hedge fund to pay personal taxes. The Wall Street Journal has also reported that investigators are looking into allegations that Mr. Falcone allowed some clients to redeem funds from his hedge fund during the financial crisis of 2008, while preventing others from doing so.[1]

According to the Wall Street Journal, Mr. Falcone and Harbinger scored big gains for investors in 2007, but his fund has since shrunk from $26.5 billion to $9 billion from losses and client withdrawals. Harbinger's fund was off 15% for the year as of last November, and investors like Goldman Sachs and Blackstone Group had put in requests to withdraw funds.

As importantly, investors have expressed increased anxiety over Mr. Falcone's plans to launch a global wireless satellite network known as LightSquared. The majority of Harbinger's declining assets have been pledged to the venture, but many believe the initiative is risky and underfunded.

Experts believe that building a wireless network can require as much as $40 billion in investment. Interestingly, a May 31, 2010 story from The Register reported that "Harbinger reckons with a suitably flexible FCC... it can get the network operable for something in the region of $6 billion."[2]

Mr. Falcone's Wireless Plans

Mr. Falcone's wireless plans appear to focus on taking advantage of an FCC wireless loophole that would allow the circumvention of the billions of dollars in investment required to purchase wireless spectrum by taking over a distressed satellite company (SkyTerra, now LightSquared) and entering the wireless phone and Internet market at a fraction of the cost of competitors.

Mr. Falcone then plans to lease or sell a part of that spectrum for wireless phone or Internet service to a consumer wireless company (or companies) that could share in the costs of building and operating the network - all without the need to operate the satellite network, or sell satellite service.[3]

The plan centered around first securing FCC approval for Harbinger's acquisition of SkyTerra, then getting the FCC to "fast-track" approval for Harbinger to take advantage of a little-known spectrum loophole for satellite licenses.

The Loophole

FCC policy regarding satellite license holders allows the holders to "supplement" satellite spectrum with freeterrestrial (land based) spectrum. The policy was implemented because satellites have limited transmission power, and the opaque nature of rooftops and buildings limits effective coverage. Satellite operators are thus permitted to run base stations on the ground, at the same frequency and use free terrestrial spectrum to "fill in the gaps." The land based spectrum is known as Ancillary Terrestrial Component (ATC), and is free to use for companies possessing a satellite license.[4]

Thus, the loophole Harbinger was seeking allowed LightSquared to essentially build out its national 4G state-of-the-art wireless and broadband network using the free terrestrial spectrum it is permitted to use as part of its satellite license, avoiding the requirements to immediately invest upfront capital to launch expensive satellites. The terrestrial spectrum can then be leased to wireless providers.

It is important to note that other companies that want to compete in the U.S. wireless phone and Internet market have to pay billions of dollars at auction to use the public airwaves (spectrum), and those billions accrue to the benefit of taxpayers. By contrast, Falcone's bold plan would build out a national wireless network taking advantage of freespectrum - i.e., at taxpayer expense. Clearwire for instance, has already invested substantial sums to secure spectrum and build out its wireless network.

Falcone's Plans Required Unprecedented FCC Intervention on his behalf

None of Mr. Falcone's plans would be successful, however, unless he was successful in persuading the Administration and the FCC to intervene on his behalf. And over the course of the past year, a series of odd decisions, questionable meetings and procedural anomalies at the Federal Communications Commission and White House highlight Mr. Falcone's growing influence in the hallways of government.

Mr. Falcone's plans required the investment of the majority of Harbinger's assets into a little known satellite company (SkyTerra) despite substantial investor opposition. The merger between Harbinger and SkyTerra was conditioned on FCC approval, and accordingly, in October of 2009, the parties sought such approval for majority control of SkyTerra and a transfer of their satellite license in a proposed merger transaction.[5]

The transaction moved through the FCC at an accelerated pace and was approved within 5 months of filing its restructured takeover request in October 2009. For comparison sake, given the slow speed in which the agency acts, the FCC typically decides merger transactions in 180 days. Since many merger transactions go well beyond that period, the FCC has an informal 180 day "shot clock" as a method of keeping transactions moving inside of the agency. Falcone's approval arrived a month before the FCC's shot clock period.

On February 26, 2010 during the FCC's public comment period on the proposed transaction, Harbinger filed a confidential business plan document that included certain conditions the company agreed to in order to obtain FCC approval of the license transfer. These conditions included an unprecedented agreement, that, without prior approval from the FCC, Harbinger would not be allowed to provide spectrum to the two largest wireless carriers, and similarly would not be allowed to carry more than a limited amount of traffic for either.[6]

During FCC merger proceedings, parties typically file confidential materials that are protected from the public. Under FCC rules, however, the public must be notified within 24 hours that a filing of confidential material was submitted into the record. In this case, the FCC withheld Harbinger's letter and the merger conditions from public disclosure for more than a month. The letter was made public only on March 31, 2010, five days after the FCC approved the license transfer, and nine days after the Harbinger/SkyTerra merger was approved by SkyTerra shareholders.[7]

The FCC also violated its own precedent by failing to place in the record and publicly disclose the merger conditions (non-confidential data) before the deal was finalized so that interested parties would have an opportunity to comment on the proposed conditions.

The FCC's electronic filing system also reveals additional anomalies with respect to Falcone's transaction - a confidential document filed on February 12 also appeared on the electronic docket on March 12-the document has yet to be made final. In fact, no public notice of the filing appeared in the electronic docket for any of the confidential filings made in late 2009 and early 2010 until weeks or months later.

On April 21, 2010 Senators Hutchinson, DeMint, Vitter and Brownback sent FCC Chairman Genachowski a joint letter with numerous inquiries regarding the Falcone transaction.[8] On May 10, Genachowski replied with a non-responsive letter. These correspondences were not posted electronically for weeks after they were filed. In addition to violating FCC procedure and precedent, the FCC's actions in withholding these documents from public view directly contradicts Chairman Genachowski's promise to maintain an open and transparent process at the FCC.

On November 19, 2010, Mr. Falcone implemented the final stage of his plan, applying for a waiver of FCC's rules to allow SkyTerra (now re-named LightSquared) to begin selling wireless phone and Internet services utilizing freeterrestrial spectrum (ATC) to wholesale customers without having to operate its satellite system. In an unprecedented move for the agency, the FCC placed Mr. Falcone's waiver request on a "fast track" approval schedule with a truncated 10-day comment period over the Thanksgiving holiday. On the Friday after Thanksgiving, the FCC granted a three-day extension of the comment period, still well short of the standard 30 day period for public comment.[9]

How Phil Falcone ensured a "suitably flexible FCC"

Sensing an opportunity to exploit FCC satellite license "loopholes" while playing into the Administration's agenda to find another facilities-based wireless and broadband provider, it now appears that Mr. Falcone worked throughout 2009 to secure special consideration and tilt the playing field to get his wireless venture off the ground.

According to White House visitor access logs, on September 22, 2009, Mr. Falcone and LightSquared CEO Sanjiv Ahuja personally visited the White House and met with the Chief of Staff at the Office of Science and Technology Policy (OSTP).[10] One day later, the Harbinger/SkyTerra merger agreement was signed.[11]

On September 30, 2009, one week after his September 2009 White House visit, Mr. Falcone contributed $30,400 to the DSCC -- the maximum legal individual contribution limit to a party committee. His wife, Lisa Falcone, contributed an additional $30,400 to the DSCC on the same day. (LightSquared's new CEO Sanjiv Ahuja also contributed $30,400 to the DNC in September of 2010).[12]

Mr. Falcone's contributions to the DSCC were anomalous as, traditionally, Mr. Falcone was a much larger donor to the Republican Party. In fact, just prior to the $60,800 in contributions to the Democrats, the most Mr. Falcone and his spouse previously contributed during that political cycle was $2,400. As for Sanjiv Ahuja, his $30,400 contribution to the DNC was his first political contribution in 8 years, and prior to that he contributed only to Republicans between 1998-2002.

On January 21, 2010, Mr. Falcone visited the White House again, this time for an appointment with John Holdren, the Director of the Office of Science and Technology Policy.

Falcone Hired Husband of Senior FCC Staffer to Lobby the FCC on Mobile Satellite Services

In addition to well-timed political contributions to the DSCC at the height of merger review discussions, Mr. Falcone's Harbinger also secured the assistance of a lobbying firm, the Palmetto Group, via Harbinger's legal counsel Goldberg, Godles, Wiener and Wright to lobby Congress and the FCC on mobile satellite services.[13] Mr. Steve Glaze, a lobbyist with the Palmetto Group, was registered to lobby the FCC directly on mobile satellite services and is married to Terri Glaze, a senior staffer at the FCC.[14]

Governmental and Private GPS Authorities Object to ATC License Due to Interference

On January 12, 2011, the National Telecommunications and Information Authority (an authority housed within the Department of Commerce responsible for working with other Executive Branch agencies to develop and present the Administration's position on telecom issues) sent a letter to Chairman Genachowski objecting to the ATC waiver for SkyTerra and stating that the "[g]rant of the LightSquared waiver would create a new interference environment and it is incumbent on the FCC to deal with the resulting interference issues before any interference occurs." (emphasis in original)[15]

Attached to Assistant Secretary Strickling's letter was a letter from Danny Price, Director of Spectrum and Communication Policy at the Department of Defense to Strickling, stating that "DoD is concerned with the [order and authorization] being conducted without the proper analysis required to make a well informed decision. Given the potential negative impacts to GPS, Inmarsat, and AMT operations, request NTIA advocate to the FCC to defer action on the waiver request and place this application under a Notice of Proposed Rule-Making . . . ."[16]

The United States GPS Industry Council (USGPSIC) has also raised concerns in a letter to the NTIA: "the potential for interference to existing terrestrial and adjacent mobile space services from the introduction of a primary terrestrial voice and data broadband service . . . is orders of magnitude more significant than under the original MSS ATC mode of operation."

The USGPSIC letter continues, "none of these changes can be fully and fairly vetted without an open rulemaking proceeding, as the current application process initiated by the FCC is insufficient for the proposed changes. Indeed, the FCC governing statute and its rules and regulations require an Administrative Procedure Act (APA)-sanctioned rulemaking in order to implement this transformation . . . ."[17]

Notably, the letter raises serious concerns about interference with E911 and law enforcement GPS applications.

Summary

Last Tuesday, the FCC, on delegated authority, officially granted the request by LightSquared to drop the FCC's long-standing requirement that its new 4G service be a satellite service. In granting the waiver, the FCC chose to issue a license modification for LightSquared because of what they term "unique" circumstances, instead of modifying its rules to apply to all providers-- essentially guaranteeing that Mr. Falcone, and only Mr. Falcone, receives this special treatment.

One can speculate whether or not those "unique" circumstances are related to Mr. Falcone's September 30, 2009 meeting with the White House, and subsequent political contributions to the DSCC (in fact, the maximum contributions allowed by law), but the outcome of the FCC's decision means other similarly situated satellite companies will not be able to take advantage of the same loophole, as the license modification is only valid for LightSquared.

The ramifications of the FCC's favoritism are enormous. Consider for instance other competitive nationwide mobile providers like Clearwire, which have purchased terrestrial spectrum at auction for substantial sums and have invested millions more -- in Clearwire's case -- to build out its 4G network. For them, the message couldn't be more clear: Companies who play by the rules, create jobs, and invest in building out competing networks, are now at great risk of seeing their plans entirely upended by the FCC's arbitrary "unique" circumstances that give a Clearwire competitor the same terrestrial spectrum for free, and essentially exempt them from requirements to invest and build out a competing network by using a wholesale model where free satellite spectrum can be leased and "laundered" to other terrestrial mobile providers.

Based on this evidence and the record outlined above, it would appear that Mr. Falcone, a hedge fund trader currently under federal civil and criminal investigation, purchased a distressed satellite company to obtain a federal government bailout worth billions of dollars by shrewdly taking advantage of existing loopholes and preferential treatment by the FCC.

Mr. Falcone, who previously was almost exclusively a supporter of GOP causes and candidates gained access and influence to the Obama Administration and Democrats through well-timed White House visits and contributions to the DSCC - weeks before filing his merger application at the FCC. Since then, at virtually every step of the way, Mr. Falcone has received favorable treatment and expedited consideration of his plans to offer wireless satellite services utilizing free terrestrial spectrum that would cost billions in the marketplace.

The FCC for its part, has fast tracked the merger, granting approval with lightning speed in March of 2010. During the entire process, the FCC has cut procedural corners, failed to publicly disclose ex parte contacts between Mr. Falcone, his representatives and the FCC, failed to consider the legitimate concerns of governmental authorities and GPS stakeholders about the ATC license waiver, and as announced last week, ultimately granted the crucial final waiver necessary for LightSquared (and only LightSquared) to begin offering wireless services using free terrestrial spectrum.

Given the above, and given the special responsibility of federal agencies to not only avoid conflicts of interest, but to avoid even the appearance of conflicts, the above record is troubling. No fair-minded person could look at the record so far and not believe that further investigation is warranted. These actions call out for your committee to conduct a thorough investigation so that citizens will have the benefit of the full record.

Sincerely,

Ken Boehm

Chairman, National Legal and Policy Center "

Source of Post

http://www.nlpc.org/stories/2011/03/01/will-fccs-political-favor-harbinger-hedge-fund-result-gps-interference

 Links to More Research on Philip Falcone, Harbinger Capital, Spectrum Brands

http://curtislublog.blogspot.com/

http://harbingercapitalpartners.blogspot.com/

http://philipfalconeblog.blogspot.com/

http://mssspectrum.blogspot.com/

http://sanjivahujablog.blogspot.com/

Phil Falcone’s LightSquared Raises $265 Million

"LightSquared, the satellite-Internet venture backed by hedge fund billionaire Philip Falcone, said it raised $265 million from new and existing investors.

LightSquared aims to craft a nationwide wireless-Internet service using satellites. While the startup recently scored a network-sharing deal with Sprint, it has faced complaints about its interference with GPS devices. LightSquared also has become a bigger and bigger chunk of Falcone’s Harbinger hedge funds.

LightSquared in a statement said it will use the newly raised funds to build out its network and for other corporate purposes. LightSquared said it has raised more than $2.3 billion in the last year."


http://blogs.wsj.com/deals/2011/07/05/phil-falcones-lightsquared-raises-265-million/

Links to More Research on Philip Falcone, Harbinger Capital, Spectrum Brands

http://curtislublog.blogspot.com/

http://harbingercapitalpartners.blogspot.com/

http://philipfalconeblog.blogspot.com/

http://mssspectrum.blogspot.com/

http://sanjivahujablog.blogspot.com/

Cablevision Is Said to Be in Talks to Use Philip Falcone Wireless Network - Leap, Best Buy, Time Warner ~ Archives

Time Warner Cable Inc. - AT&T agreed on Mar. 20 to buy T-Mobile USA from Deutsche Telekom AG -
Leap Wireless International Inc. - Best Buy Co. - Cablevision Systems Corp.

"Cablevision Is Said to Be in Talks to Use Philip Falcone Wireless Network

Cablevision Systems Corp. is in discussions with Philip Falcone’s LightSquared Inc. about using the venture’s network to offer wireless services to its customers, according to a person familiar with the situation.

No deal has been reached, said the person, who declined to be identified because the negotiations are private. LightSquared, backed by Falcone’s Harbinger Capital Partners hedge fund, is building a wireless network with so-called fourth-generation technology to compete with AT&T Inc., Verizon Wireless and Clearwire Corp.

Cablevision, based in Bethpage, New York, could use the network to offer expanded wireless capability to its Internet, television and telephone customers.

Time Warner Cable Inc., Cablevision’s rival in the New York area, is also in talks with LightSquared, two people familiar with the matter said this week.

“The cable industry’s primary interest is preserving an independent wireless option and to try to do it in a very low- cost way,” said Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York, who has a “market perform” rating on Cablevision shares.

“It’s one more ripple in the pond in the wake of the T-Mobile-AT&T announcement.

 The cable operators are looking at an increasingly concentrated wireless industry, and they want to ensure they keep their options open.”

AT&T agreed on Mar. 20 to buy T-Mobile USA from Deutsche Telekom AG for about $39 billion in cash and stock, which would combine the second- and fourth-largest U.S. wireless operators.

Leap, Best Buy

Jim Maiella, a Cablevision spokesman, and Audrey Schaefer, a spokeswoman for LightSquared, declined to comment.

LightSquared has also announced deals with retailer Best Buy Co. and pay-as-you-go mobile-phone carrier Leap Wireless International Inc. Falcone has committed billions to build out LightSquared’s network and plans to spend $14 billion over the next eight years, according to Chief Executive Officer Sanjiv Ahuja.

Cablevision shares fell 1 cent to $34.85 at 4 p.m. in New York Stock Exchange composite trading yesterday. The shares have gained 3 percent this year.

To contact the reporters on this story: Alex Sherman in New York at asherman6@bloomberg.net; Greg Bensinger in New York at at gbensinger1@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net "

Source
http://www.bloomberg.com/news/2011-03-25/cablevision-said-to-be-in-talks-to-use-falcone-s-lightsquared-network.html

Links to More Research

http://harbingercapitalpartners.blogspot.com/

http://philipfalconeblog.blogspot.com/

http://mssspectrum.blogspot.com/

http://sanjivahujablog.blogspot.com/

Has Philip Falcone EVER done anything to Manipulate Stock Prices? Research Links Regarding Philip Falcone and Harbinger Capital

"The Bear Case against Philip Falcone, Harbinger Group Inc, and Spectrum Brands

The Bear Case against Philip Falcone, Harbinger Group Inc, and Spectrum Brands 

Three Parts:

1.       Philip Falcone

2.      Harbinger Group Inc (NYSE:HRG)                             

Last                        9.71

Mkt cap                1.36B    

P/E                           -

52 week               2.75 - 10.85

3.      Spectrum Brands Holdings, Inc.(NYSE:SPB)

Last                        47.50

Mkt cap                2.44B

P/E                         275.99

52 week               23.04 - 48.22

Part 1:  Philip Falcone

When it comes to stock manipulation Philip Falcone has the magic.  It was only back in June that we saw the headline “Philip A. Falcone and Harbinger Charged with Securities Fraud.”  Shortly before that he made news for losing billions of his investor’s money in LightSquared, a trade so rouge it reeks of foul play.  (Read Pages 170-175 and let me know if this sounds familiar The Book of Daniel Drew)

I found the SEC report against Falcone to be a real delight and suggest if you’re interested in gaining insight into the ethics of Mr Falcone, you click the links found here.

                

Otherwise here are a couple highlights:

1.  Falcone fraudulently obtained $113.2 million from a hedge fund that he advised and misappropriated the proceeds to pay his personal taxes;
2. Falcone and Harbinger secretly offered and granted favorable redemption and liquidity rights to certain strategically-important investors in exchange for those investors’ consent to restrict redemption rights of other fund investors, and concealed the arrangement from the fund’s directors and investors; 
3. Harbinger engaged in illegal trades in connection with the purchase of common stock in three public offerings after having sold the same securities short during a restricted period.

 On the matter of the alleged 113.2 million loan for Falcone's “personal taxes”, I found this quote from the SEC report rather odd.

"The Defendants also never contacted any state or federal tax authorities, such as the Internal Revenue Service".  sec.gov/litigation/

Huh?  Wouldn't it seem logical that a person would do this first?  Which is why I'm especially curious if the SEC confirmed with the IRS that Philip Falcone did in fact have a 113.2M tax liability due in October 2009.  

Falcone refused to accept a bank loan to cover his liability because it required him to pledge personal assets (House, Art, estate on St. Barts Residence etc), which I found strange too...as long as you didn't have ill-intentions, what would be the problem?  

Instead Falcone tried using fund interests as collateral but,

"Jenson had been unable to find any bank that was willing to lend at any price against Falcones  SSF interests."  sec.gov/litigation/

Boy, it really speaks volumes about the quality of the underlying assets when the Banks who underwrote many of the deals and whom Falcone has done billions in transactions with refuse to lend against Falcones stake in the fund.

Rather than pledge personal assets for the “IRS tax liability”, Falcone arranged a personal loan from one of his funds.  This did not go over well for several reasons, 1) The fund had halted redemptions, 2) The rate of interest was 3% less than what the fund was borrowing at, 3) He failed to disclose the transaction.

Interesting enough, 2 months after the loan was made, Falcone made a personal capital commitment of 10mil to a "non-harbinger fund".  

The amounts 113m and 10mil I have seen before, which is why I'm interested in whether this IRS claim is legit. Could that 113.2 mil been used to fund some entity which was going to purchase assets from his fund?  Could Falcones personal and separate 10 million commitment to the non-harbinger fund, represent the premium/collateral as part of a swap trade betting against the value of assets held by the entity?  I wonder.

Part 2:  Harbinger Group Inc

Harbinger Group Inc. (NYSE: HRG) is a diversified holding company seeking to acquire and to grow attractive businesses that generate sustainable free cash flow.

What Falcone essentially did was create this publically traded holding company for which he swapped the garbage assets out of his funds in exchange for shares in this new Harbinger Group Inc.

For example,

NEW YORK, Mar 07, 2011 (BUSINESS WIRE) -- Harbinger Group Inc. ("HGI"; NYSE: HRG) is pleased to announce that it has signed a definitive agreement today with Harbinger Capital Partners Master Fund I, Ltd. ("Harbinger") for the right to acquire Old Mutual U.S. Life Holdings, Inc. ("U.S. Life") for $350 million pursuant to an agreement entered into with OM Group (UK) Limited ("Seller").

http://www.harbingergroupinc.com/phoenix.zhtml?c=118763&p=irol-newsArticle&ID=1536649&highlight=

Here is a timeline of HGI (Click to Enlarge)

                                

Spectrum Brands Holdings, Old Mutual, and Front Street Re all came from Falcone’s funds.

Acquisition of Fidelity & Guaranty Life

FG&L: Fidelity Guarantee & Life is a life insurance and annuity company bought by Harbinger for $350M from Old Mutual in the spring of 2011. The wholly owned entity currently has 156 employees and $15.8B under management. The company’s products are offered throughout the United States using a network of over 300 insurance marketing organizations (IMOs) that FG&L partners with.

FG&L makes money from the spread between the interest rates on the annuities they pay out and the rate they make on their investments. The company posted an operation loss of $18M in 2011 due to interest rate violatility which was offset by a “bargain purchase” gain $151M. HGI had to recognize this gain based on accounting rule SFAS 141R which states that if during an acquisition, the total acquisition date valuation of the net assets exceeds that of the considerations transferred, a gain must be marked on the sale. Essentially, Harbinger Group judged that FG&L was worth $151M more than they paid. Per their annual report this judgment was made from, among other things, an independent appraisal of FG&L and the external pressures to sell surrounding Old Mutual.

http://seekingalpha.com/article/319032-harbinger-group-a-fifty-cent-dollar

A 151m gain due to a “bargain purchase”???  There was a recent short write up about how ridiculous these type of accounting tricks are which you can find here.

NEED PROFIT? BUY SOMETHING!  Jul, 30, 2012

http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/733

This OM Financial Life Insurance Company, now known as Fidelity Guarantee & Life Insurance, in my opinion, will be bust within a year.

               

From an Examination report dated Dec 31, 2009: Notice the losses every year!  (Click to Enlarge)

                

http://www.mdinsurance.state.md.us/sa/documents/OMFinancial63274MD2009.pdf

Downgrade of OM Financial in June 2010, (The same assets deemed a "bargain purchase" a year later)

OM Financial Life’s ratings drop on concerns about possible sale

June, 3rd 2010

“The downgrade reflects our view of the nonstrategic nature of OMFL to its parent, Old Mutual PLC, which its parent demonstrated when it announced its intention to sell the unit,” said Standard & Poor’s credit analyst Jeremy Rosenbaum in a statement. “In addition, we are concerned about the impact that OMFL’s narrowing business profile could have on its long-term business prospects.” OMFL also has significant exposure to stressed asset classes in its investment portfolio and outsized risk tolerances, according to the service.

http://ifawebnews.com/2010/06/03/om-financial-lifes-ratings-drop-on-concerns-about-possible-sale/

(Coming Soon:  I have some great analysis on the holdings of OMFL, which are real cause for concern) 

Front Street Re Ltd            YIKES!!!!

HGI also announced today that it has agreed to acquire from Harbinger, FS Holdco Ltd. ("FSH"), the ultimate parent company of Front Street Re Ltd., a recently formed, Bermuda-based reinsurer ("Front Street"). The agreement to acquire FSH contemplates that after closing of the U.S. Life acquisition, a special committee of the board of directors will consider a proposed $3 billion reinsurance transaction pursuant to which Front Street would reinsure certain policy obligations of OM Financial Life Insurance Company, a subsidiary of U.S. Life, and an affiliate of Harbinger could be appointed as investment manager of certain of the assets associated with the reinsured business.

 http://www.harbingergroupinc.com/phoenix.zhtml?c=118763&p=irol-newsArticle&ID=1536649&highlight=

(Coming Soon: Formation of Salus Partners--Analysis)

Overpaying for the funds assets, which really shouldn't be a surprise sine Falcone's other fund is the seller.

"HGI is vastly overpaying for the acquisition of assets from its majority and controlling shareholder," according to the suit, which was filed by Harbinger Group investor Alan Kahn in Delaware Chancery Court on Tuesday.

http://www.zerohedge.com/article/phil-falcone-sued-over-stock-swap-harbinger-group

Of the debt raises of Harbinger Group Inc, I’d like to point out the convertible notes because I’ve found these to be a common theme in these manipulations.  You can bet at some point these are going to be dropped on HGI like a ton of bricks.

MAY 2011

We completed the private offering of a sale of $280MM in aggregate of Series A Participating Convertible Preferred Stock to certain institutional investors.

AUGUST 2011

We completed the private offering of a sale of $120MM in aggregate of Series A-2 Participating Convertible Preferred Stock to certain institutional investors. Together with the sale in May 2011, we raised a total of $400MM in convertible preferred stock

The following filling makes me wonder about my theory Falcone could be betting against the assets hes swapping into HGI.

July 20, 2011

Accordingly, each Harbinger Person reserves the right to change its intentions and develop plans or proposals at any time, as it deems appropriate. In particular, each Harbinger Person may at any time and from time to time, (i) in the open market, in privately negotiated transactions or otherwise, acquire additional Shares or other securities of the Issuer, including acquisitions from affiliates of the Harbinger Persons; (ii) dispose or transfer of all or a portion of the securities of the Issuer, including the Shares, that the Harbinger Persons now own or may hereafter acquire to any person or entity, including dispositions to affiliates of the Harbinger Persons; (iii) enter into derivative transactions with institutional counterparties with respect to the Issuer's securities; (iv) cause or seek to cause the Issuer or any of its subsidiaries to acquire all or a portion of another person's assets or business, including acquisitions from affiliates of the Harbinger Persons; (v) cause or seek to cause the Issuer or any of its subsidiaries to enter into one or more acquisitions, business combinations or mergers or to sell, transfer or otherwise dispose of all or any portion of its assets or business to any person or entity, including acquisitions, business combinations, mergers, sales, transfers and other dispositions with or to affiliates of the Harbinger Persons; (vi) restructure the Issuer's or any of its subsidiaries' capitalization, indebtedness or holding company arrangements; (vii) make personnel changes to the present management of the Issuer deemed necessary or desirable; (viii) change the identity of the directors of the Issuer; (ix) make or propose any other material change in the Issuer's or any of its subsidiaries' corporate structure or business; or (x) engage in communications with one or more stockholders, officers or directors of the Issuer and other persons regarding any of the matters described in clauses (i) through (ix) above.

http://www.harbingergroupinc.com/phoenix.zhtml?c=118763&p=irol-newsArticle&ID=1587366&highlight

Part 3:  Spectrum Brands

About:

About Spectrum Brands Holdings, Inc.

Spectrum Brands Holdings, Inc., a member of the Russell 2000 Index, is a global and diversified consumer products company and a leading supplier of batteries, shaving and grooming products, personal care products, small household appliances, specialty pet supplies, lawn & garden and home pest control products, personal insect repellents and portable lighting. Helping to meet the needs of consumers worldwide, the Company offers a broad portfolio of market-leading, well-known and widely trusted brands including Rayovac®, Remington®, Varta®, George Foreman®, Black & Decker®, Toastmaster®, Farberware®, Tetra®, Marineland®, Nature’s Miracle®, Dingo®, 8-in-1®, FURminator®, Littermaid®, Spectracide®, Cutter®, Repel®, Hot Shot® and Black Flag®. Spectrum Brands Holdings' products are sold by the world's top 25 retailers and are available in more than one million stores in more than 120 countries. Spectrum Brands Holdings generated net sales of approximately $3.2 billion in fiscal 2011. For more information, visit www.spectrumbrands.com

Now before you read the following, I suggest you give this a quick read for its rather interesting and help put it in perspective.

DELOITTE’S INTANGIBLE ASSET CLIENTS REVISITED

http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/763

A big concern with Spectrum Brands is with how it accounts for acquisitions as well as future profits. (I believe the numbers below are in millions, its not clear from the fillings)

Other Acquisitions

During the nine month period ended July 1, 2012, Spectrum Brands completed the following acquisitions which were not considered significant individually or collectively:

Black Flag

On October 31, 2011, Spectrum Brands completed the $43,750 cash acquisition of the Black Flag and TAT trade names (“Black Flag”) from The Homax Group, Inc., a portfolio company of Olympus Partners. The Black Flag and TAT product lines consist of liquids, aerosols, baits and traps that control ants, spiders, wasps, bedbugs, fleas, flies, roaches, yellow jackets and other insects. In accordance with ASC Topic 805, Business Combinations (“ASC 805”), Spectrum Brands accounted for the acquisition by applying the acquisition method of accounting.

The results of Black Flag’s operations since October 31, 2011 are included in the accompanying Condensed Consolidated Statements of Operations. The purchase price of $43,750 has been allocated to the acquired net assets, including $25,000 of identifiable intangible assets, $15,852 of goodwill, $2,509 of inventories, and $389 of properties and other assets, based upon a preliminary valuation. Spectrum Brands’ estimates and assumptions for this acquisition are subject to change as Spectrum Brands obtains additional information for its estimates during the measurement period. The primary areas of the acquisition accounting that are not yet finalized relate to certain legal matters and residual goodwill.

FURminator

On December 22, 2011, Spectrum Brands completed the $141,745 cash acquisition of FURminator, Inc. (“FURminator”) from HKW Capital Partners III, L.P. FURminator is a leading worldwide provider of branded and patented pet deshedding products. In accordance with ASC 805, Spectrum Brands accounted for the acquisition by applying the acquisition method of accounting.

The results of FURminator operations since December 22, 2011 are included in the accompanying Condensed Consolidated Statements of Operations. The purchase price of $141,745 has been allocated to the acquired net assets, including $79,000 of identifiable intangible assets, $68,531 of goodwill, $9,240 of current assets, $648 of properties and $15,674 of current and long-term liabilities, based upon a preliminary valuation. Spectrum Brands’ estimates and assumptions for this acquisition are subject to change as Spectrum Brands obtains additional information for its estimates during the measurement period. The primary areas of the acquisition accounting that are not yet finalized relate to certain legal matters, income and non-income based taxes and residual goodwill.

http://www.sec.gov/cgi-bin/viewer?action=view&cik=109177&accession_number=0001193125-12-348381&xbrl_type=v#

Look at the write downs to intangibles and goodwill back in 2007-2009, a good indicator for what lies ahead?

During fiscal 2009, 2008, 2007 and 2006, pursuant to the Financial Accounting Standards Board Codification Topic 350: “Intangibles-Goodwill and Other,” formerly the Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” Spectrum conducted its annual impairment testing of goodwill and indefinite-lived intangible assets. As a result of these analyses Spectrum recorded non-cash pretax impairment charges of approximately $34 million, $861 million, $362 million and $433 million in the eleven month period ended August 30, 2009, fiscal 2008, fiscal 2007 and fiscal 2006, respectively. See the “Critical Accounting Policies—Valuation of Assets and Asset Impairment” section of  http://www.sec.gov/Archives/edgar/data/1487730/000119312510070095/ds4.htm

The following treatment of “Cost of goods sold” and “Selling, general and administrative expenses,” seem inappropriate?

 Restructuring and Related Charges

The Company reports restructuring and related charges associated with manufacturing and related initiatives of Spectrum Brands in “Cost of goods sold.” Restructuring and related charges reflected in “Cost of goods sold” include, but are not limited to, termination, compensation and related costs associated with manufacturing employees, asset impairments relating to manufacturing initiatives, and other costs directly related to the restructuring or integration initiatives implemented.

The Company reports restructuring and related charges relating to administrative functions of Spectrum Brands in “Selling, general and administrative expenses,” such as initiatives impacting sales, marketing, distribution, or other non-manufacturing functions. Restructuring and related charges reflected in “Selling, general and administrative expenses” include, but are not limited to, termination and related costs, any asset impairments relating to the functional areas described above, and other costs directly related to the initiatives

http://www.sec.gov/Archives/edgar/data/109177/000095012311102954/R29.htm

Unusual growth in subsidiaries: Given the huge quantities of Goodwill and Other Intangibles picked up and written down over this time, is it possible some of these off balance sheet entities could be holding distressed paper assets? 

Dec 2005:             5              Subsidiaries

http://www.sec.gov/Archives

Dec 2007:             95           Subsidiaries

http://www.sec.gov/Archives

Dec 2011:             135         Subsidiaries

http://www.sec.gov/Archives

Will history repeat itself?  Not only in terms of the goodwill and intangible write-downs of Spectrum Brands, but another pump and dump orchestrated by Philip Falcone?

On February 3, 2009, Spectrum and thirteen of its United States subsidiaries (collectively, the “Debtors”) filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Western District of Texas. On August 28, 2009, the Debtors’ joint plan of reorganization (the “Plan”) became effective and the Debtors emerged from Chapter 11 of the Bankruptcy Code. Pursuant to the Plan, Spectrum’s capital structure was realigned. Spectrum’s outstanding equity securities were cancelled with no distribution to holders of Spectrum’s then existing equity. Spectrum issued new common stock and 12% Senior Subordinated Toggle Notes due 2019 (“PIK Notes”) to holders of allowed claims in respect of Spectrum’s then outstanding public senior subordinated notes.

(Coming Soon more spectrum brands analysis)

In conclusion, Harbinger Group Inc is holding greater than a billion dollars of shit Falcone couldn’t wait to get off his hands.

Short Side Risk:

As far as shorts go the risk that a buyout such as Harbin Electric or (tentative) Focus media, I feel are quite small.  HGI and Spectrum are prime candidates for collapse, and that is the plan in my opinion.  Having studied and followed the flows I believe I understand why certain concerns are more sensitive to their plans being exposed.

Falcone and the trust could continue to mark this thing up on insider buying and bogus revenue numbers which never will materialize, but I feel the risk reward is good here especially if you pyramid on the way down.

Another way to mitigate risk on the short side might be to contact the bond holders of Harbinger as well as Spectrum regarding these concerns; i.e. enron style accounting and the self dealing Philip Falcone.

Some Bond Holders of this Junk:  (How these guys get away selling this stuff to the state is beyond me...Guess when no one goes to jail why not, right?)

Data for July 2011 - State of New Jersey
 HARBINGER GROUP INC 11/15   FIXED 10.625     575,301.22

June, 2012 - Vermont State Treasurer
HARBINGER GROUP INC '41146AAB2 $1,000,000
SPECTRUM BRANDS INC '84762LAG0 $1,975,000

GS HIGH YIELD FUND - Goldman Sachs 
SPECTRUM BRANDS INC               $2,050,000 (6.75%)SPECTRUM BRANDS INC               $5,450,000 (9.5%)
SPECTRUM BRANDS INC  $13,650,000.00 (9.5% different issue)

Holdings - Prudential Investments
Spectrum Bonds

 Nuveen Symphony Credit Opportunities Fund Spectrum Bonds

And maybe even people like this;

Wisconsin Economic Development Corp; 4 Mil in Contingent Exposure

Wisconsin Economic Development Corp gives Spectrum grants 4M incentive for spectyrum to move to winsconson, in exchange for its promise to keep its 470 existing Dane County employees through Sept. 30, 2016, and invest $40 million in its Wisconsin operations by that time. If it fails to fulfill these requirements, it must pay back the $4 million with interest. Otherwise, it owes nothing beyond an $80,000 origination fee.

http://host.madison.com/ct/business/million-spectrum-deal-had-a-stealth-component/article_a961679a-47aa-11e1-8dab-001871e3ce6c.html

Source of Post
http://cycleofstructurednonsense.blogspot.com/2012/10/the-bear-case-against-philip-falcone.html


More Research Links

http://cycleofstructurednonsense.blogspot.com/2012/10/the-bear-case-against-philip-falcone.html

http://philipfalconeblog.blogspot.com/

http://mssspectrum.blogspot.com/

http://sanjivahujablog.blogspot.com/

http://francismccarron.blogspot.com/

http://harbingercapitalpartners.blogspot.com/

http://frankboulben.blogspot.com/

http://terrypolistina.blogspot.com/