article

04.16.12

Philip Falcone: Billionaire on the Brink

The hedge-fund manager is facing possible bankruptcy of his LightSquared telecom company, censure by the SEC, and lawsuits by investors, but tells Eli Lake he will solve the problems—and still be a rich guy if worse comes to worst.

April 5 was a tough day for Philip Falcone. That was the day the Federal Communications Commission proposed to void an invaluable license for LightSquared, the telecom company Falcone’s hedge fund has invested nearly half its assets in. Now Falcone’s LightSquared is facing bankruptcy, the hedge fund’s investors are suing Falcone, and he could be censured and sanctioned by the Securities and Exchange Commission.

Falcone may risk going from riches to rags, but he won’t be going down without a fight.

From the vantage point of his Park Avenue offices and trading floor in midtown Manhattan, Falcone appears undisturbed. “I am not losing sleep over these issues,” he said. “I will solve them; there is a solution to every problem, and there is a solution to every issue.”

He said those words with calm deliberation. The only sign Falcone was feeling any pressure were the deep perspiration stains under his armpits, a condition that afflicts many men who are not in jeopardy of losing billions of their own and other people’s money.

This may be a 1 percenter problem, but Falcone also knows a thing or two about the 99 percent. He grew up in Chisholm, Minn., among the iron mines near where his mother worked in a factory. He played hockey as a youth and still has a love for the game today. The conference rooms of his hedge fund, Harbinger Capital Partners, are named for NHL teams. He wears on his wrists a $500 IWC watch and bracelets made by his daughters. At one point in the interview he said he would be happy running a hot-dog stand on the beach.

At the end of the interview, when I suggested he was like Tupac, who recorded “Me Against the World,” a song about fighting back when the world closes in on you, Falcone said he liked the late rapper’s work. “Tupac and I grew up in the same kinds of neighborhoods. He grew up in Compton, and I grew up in northern Minnesota,” he said with a laugh.

But Falcone also has a 1 percent side. At one point he explained that he had “blue collar” tastes. Asked for an example, he said he owned a 1967 Shelby muscle car. Currently, Falcone and his wife are renovating the Manhattan mansion that once belonged to Bob Guccione, the founder and publisher of Penthouse. The Falcone family owns seven dogs, two cats, and two potbelly pigs. One of them will play a toy piano for a Cheerio.

A Vanity Fair profile of Falcone and his wife, Lisa Maria, last year described a scene in 2009 at a fundraiser for the High Line park in Manhattan, at which Lisa Maria grabbed the microphone and offered to match a $10 million donation for the park from Barry Diller, the CEO of IAC (the company that owns The Daily Beast)—drawing criticism from others in New York society.

Falcone was baffled by the criticism. “When the people started talking about how uncouth it was to match or to give 10 million that night it was like, you’ve got to be kidding. When is there a wrong time to give money to a good cause?” he told me.

While Falcone owns a fortune, he says his money does not define him. “I am less wealthy today than I was two years ago because of my mark down in LightSquared, and so be it. I don’t think about it like that,” he said.

For now Falcone is fighting for LightSquared and his hedge fund. Asked about the FCC decision, Falcone said, “I kind of felt like it was unjust. It was not right.” From Falcone’s perspective, when his fund purchased LightSquared, they were buying a company that owned a license to build out the ground stations for a terrestrial network. The license from 2005 for LightSquared was explicitly for phones that used both satellite and terrestrial networks. In 2011 the FCC granted LightSquared a waiver to allow vendors using its proposed network to sell terrestrial-only cellphones. As a condition of the 2011 waiver, LightSquared was instructed to test whether the signals from their ground stations would cause interference for commercial and military GPS signals. Those tests did find interference, but Falcone and LightSquared executives say this was the fault of the GPS industry.

“The interference problem is wholly caused by the GPS receivers,” said Jeff Carlisle, a senior vice president for LightSquared. “We stay in our lane and don’t cause any interference; it’s the GPS receivers that look into our space and pick up our signal. There is no dispute about that.”

In retrospect, Falcone said, LightSquared made a mistake by being too confrontational with the GPS industry. “The company approached the situation with a club as opposed to an olive branch,” he said. “There has to be a different policy that the company has to embrace, and that is working with the various agencies and GPS manufacturers to come up with a solution.”

Falcone’s latest move is to ask the FCC to swap the spectrum space LightSquared currently owns and leases for a different swath of the wireless spectrum. The FCC in the past has offered spectrum swaps, but almost always when the proposed spectrums are of equal value.

Paul Gallant, a telecommunications analyst for Guggenheim Securities, said, “It certainly feels like a spectrum swap would be a tough sell in Washington. LightSquared has become very politicized, and we are in a campaign season. The administration supports what LightSquared stands for, which is more wireless broadbands, but the politics and the engineering of this situation have become pretty tricky.”

“I am not losing sleep over these issues. I will solve them; there is a solution to every problem, and there is a solution to every issue.”

On this point Falcone is most animated. He said he finds it “mesmerizing” that LightSquared has been compared with Solyndra, the solar-cell company that received more than half a billion dollars in loans from the government in 2009 that eventually went bankrupt last year.

“It is mesmerizing when people compare us to Solyndra and call us a beneficiary of crony capitalism; we are the total opposite,” he said. “We have never asked for a favor, we have never asked for capital, I don’t have relationships with the administration, I have never had a big affiliation with any political entity or individual. All I wanted to do is build a network, and I invested in this thing expecting to be able to do so, and instead I feel like I am caught in the middle of a maelstrom for reasons not of my doing.”

Many times in the interview, Falcone promised to keep fighting. At first he would not even talk about what would happen if the FCC did not grant LightSquared the spectrum swap. But if the worst came to pass for Falcone’s telecom company, he will still be a rich guy.

“If LightSquared went to zero, no, my lifestyle would not change,” he said. “I have enough capital in other assets and in other areas where my lifestyle is not going to change.”