US hedge fund Harbinger Capital faces 'fraud' charges over Applica takeover
Harbinger Capital, the hedge fund run by billionaire Philip Falcone, must answer accusations of fraud and civil conspiracy, a judge in Delaware has ruled.
The judge said Nacco, a maker of kitchen appliances, can pursue claims that Harbinger gained an unfair advantage in a takeover battle of Applica, a rival company in 2006.
Although the claims are complicated and have been thrown out by a previous court, the case will be closely followed as it will lift the lid on the workings of one of the world's biggest and most controversial hedge funds.
Mr Falcone, who is worth $2.3bn (£1.44bn) according to Forbes, became known after making billions of dollars shorting sub-prime mortgages at the start of the credit crisis.
The financier, who was a star hockey player at Harvard, also made millions betting against HBOS last year. At the time of the British bank's rights issue Harbinger revealed it was holding 3.29pc of the stock on loan, a bet then valued at about £348m. Harbinger manages over $20bn.
Nacco alleges that the target company Applica handed "non public information" to Harbinger which enabled the hedge fund to win the deal. Nacco is allowed to pursue charges of breach of covenant, tortious interference with contract, fraud and civil conspiracy. The company has not yet said set a figure how much it is claiming. Harbinger eventually took over Applica in 2007 for $8.25 per share, valuing it at about $206m.
Harbinger, which has been fighting reports that the dispute is regarding insider trading charges, said in a statement: "There is no claim in the case that rests on the misuse of confidential information. The only claims in the litigation against Harbinger are that Harbinger wrongfully interfered with Nacco's efforts to acquire Applica and that certain of Harbinger's securities filings failed accurately to describe its true investment intent with respect to Applica. The claims are wholly unsubstantiated."
Judge Travis Laster also dismissed three other claims. In his 63-page opinion, he said it was too soon to rule on the merits of the claims and ordered a trial within a year.
The court papers said: "This is a pleadings-stage decision. It determines only whether Nacco can proceed with its claims. Whether Nacco ultimately prevails and obtains a remedy will depend on the evidence presented."
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