Lawsky bars hedge fund giant from insurance business

Little more than one month ago Fidelity & Guaranty Life, a leading provider of fixed indexed annuities (FIAs), announced it was  going public through parent company Harbinger Group Inc. It filed a prospectus for a $100 million IPO. In 2011, HGI, which lists itself as a publicly traded diversified holding company, acquired Fidelity & Guaranty Life (FGL) for $350 million. 

The agreement is in line with the agreements struck with Guggenheim Partners LLC and Apollo Global Management LLC this  summer as part of a package of policyholder and reserve protections in their acquisitions of annuity companies.

Lawsky has highlighted a spike in private equity firms and other investment companies moving into the annuity business and subpoenaed private equity firms, concerned that they have a more short-term oriented business model than traditional insurers, while they were buying annuity businesses. He wanted them to show they were focused on ensuring long-term security for policyholders by subjecting them to higher standards. The companies, including Fidelity, will also have stronger disclosure and transparency requirements.

The August SEC action resulted in a civil penalty of $10.5 million and payments of more than $7.5 million against Falcone  and the Harbinger defendants  for improperly borrowing $113.2 million from two funds they advised, Harbinger Capital Partners Special Situation Fund (SSF) and Harbinger Capital Partners Fund.

Falcone prevented other SSF investors from making redemptions, and did not disclose the loan to investors for approximately five months; and granted favorable redemption and liquidity terms to certain large investors in HCP Fund who voted in favor of more restrictive redemption terms, and did not disclose these arrangements to the fund’s board of directors and the other fund investors, according to the consent order.