Phil Falcone Uses Apollo Court Claim to Secure Loan From Michael Dell

·3 min read

(Bloomberg) -- In the past decade, former billionaire Phil Falcone drove his multibillion-dollar hedge fund into the ground, was temporarily banished from the securities industry and wrangled in court with multiple creditors.

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Even so, he’s still managing to raise cash from at least one deep-pocketed backer: Michael Dell.

Falcone’s Harbinger Capital Partners landed a $3 million loan from Dell’s family office, in part by pledging one of its biggest potential assets: a lawsuit it filed against Apollo Global Management Inc.

The loan, from an affiliate of Dell’s MSD Capital, is also secured by a portion of Falcone and his wife’s stake in a company that plans to launch a television network devoted to blockchain and cryptocurrencies. The venture marks Falcone’s latest attempt to revive his fortunes. At its peak, Harbinger managed $26 billion after his winning wager against the US housing market in the run-up to the 2008 financial crisis.

But clients pulled cash after subsequent investments soured -- including the acquisition of Apollo’s stake in wireless carrier SkyTerra Communications. In 2013, regulators banned Falcone from the securities industry for five years as part of a settlement in which he admitted borrowing $113 million from a Harbinger fund to pay personal taxes.

Falcone, 60, said in a phone interview that the financing from MSD Capital was a standard hedge fund loan, adding that it wasn’t the first time he had worked with Dell’s family office.

“I have done business with them for years and years,” he said.

Read more: Falcone’s Harbinger Hedge Fund Turns to Dell’s MSD for Financing

Spokespeople for MSD Capital and Apollo declined to comment.

The loan represents a tiny fraction of the roughly $15 billion managed by MSD Capital. But it illustrates Falcone’s ability to raise financing, albeit at high rates, even after years of bad publicity.

Harbinger sued Apollo in 2017, seeking to recoup an investment of almost $2 billion. The hedge fund alleged it was the victim of a “massive fraud” by the private equity giant and its partners who sat on the board of SkyTerra, which was subsequently renamed LightSquared and filed for bankruptcy in 2012. The loan from MSD Capital is secured by “all profits and proceeds” from the pending litigation, according to a filing with New York state.

Read more: Apollo ‘Fraud’ Led to $2 Billion Loss, Harbinger Claims in Suit

Madison Technologies Inc., the company behind the planned crypto TV venture, has a market value of about $320,000, and its stock most recently traded for less than 1 cent. The firm raised $15 million early last year by selling convertible notes at a discount to funds run by Daniel Zwirn’s Arena Investors, according to an August regulatory filing. The three-year notes, secured by Madison’s stations and licenses, have a face value of $16.5 million and pay annual interest of 11%. That jumped to 20% after Madison missed several recent payments.

The Falcones acquired their Madison Technologies stake through a deal with Jeffrey Canouse, an entrepreneur who had planned to use the company to market a line of women’s shaving products via a branding agreement with Casa Zeta Jones, the lifestyle collection curated by actress Catherine Zeta-Jones.

Madison shifted gears under Falcone, who initially envisioned using it to buy low-power television stations in major US markets. He subsequently decided to set up a news and entertainment network called Blockchain TV, or BCTV, with programming focused on crypto, non-fungible tokens and other digital assets.

Falcone had been battling in court with multiple creditors -- including one of his longtime lawyers, a limousine company and the Internal Revenue Service -- as he sought to maintain a lavish lifestyle and pursue new ventures, the Wall Street Journal reported in December.

“I’m behind on virtually every one of my bills,” Falcone said at one hearing, according to the newspaper. “Including my kids’ tuition.”

(Corrects reference to collateral in fourth paragraph of story originally published on Sept. 16.)

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