The SEC announced that the former Chief Operating Officer at Harbinger Capital Partners LLC has agreed to settle allegations that he assisted a scheme by the firm and its owner to misappropriate millions of dollars from a hedge fund they managed to pay the owner’s personal taxes. Court approval of the settlement is pending.

In the settlement, the former COO admits that with knowledge of relevant violations, he provided substantial assistance in connection with a loan by failing to:

• Ensure that the lender (Harbinger Capital Partners Special Situations Fund) had separate counsel.
• Ensure that the loan was consistent with fiduciary obligations to the Special Situations Fund.
• Ensure that the owner paid an “above market” interest rate on the loan.
• Timely disclose the loan to investors.
• Take actions to cause the lender to accelerate the owners payment on the loan once investors in the Special Situations Fund were permitted to begin redeeming their investments.

The SEC stated “This settlement shows that we hold accountable not only those who perpetrate a scheme, but also those who enable them.”