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Harbinger bet on LightSquared draws SEC scrutiny

Phil Falcone’s Harbinger Capital Partners LLC lost 47 percent for investors in his main hedge fund last year as he was forced to slash the value of his troubled wireless venture by more than half.  Most of the decline in the Harbinger Capital Partners Offshore Fund I came from Falcone’s investment in LightSquared Inc., which plans to offer high-speed data service to as many as 260 million people. The Reston, Virginia-based company is awaiting final clearance from the Federal Communications Commission as regulators weigh test results that show the service’s signals disrupt global-positional system equipment used by cars, tractors, boats and planes.

“The decline was primarily due to a conservative adjustment in the fund’s holdings of LightSquared, to be consistent with the results of work done by the fund’s third- party valuation firm,” Lew Phelps, a spokesman for the New York-based fund, said in a statement. “The valuation takes into account uncertainty about the outcome of political issues related to alleged interference with the GPS system by LightSquared transmitters,” added Phelps, who confirmed the fund’s loss.

The 59 percent reduction in the value of the fund’s LightSquared stake illustrates the precarious nature of the investment on which Falcone, who is also under investigation by U.S. regulators, is betting the future of his firm. Harbinger, which managed $4 billion at the end of last year, put about $3 billion into LightSquared, and the investment accounted for 62 percent of the main fund at the end of May.

The SEC is investigating whether Harbinger gave some investors preferential treatment by allowing them to withdraw money while barring others from doing so. Harbinger is also being investigated by the SEC and the U.S. Attorney’s office over a $113 million loan Falcone took from one of his funds.

Falcone has denied giving preferential treatment to any investors.