EFTA01769852.pdf

From: David Stern Sent: Monday, April 16, 2012 4:10 PM To: Jeffrey Epstein Subject: Ferrous The =ron ore asset I sent you information about might be bought by =cahn. I still have direct access to the seller. Key para =rom article below: "Icahn is nearing agreement to buy a 14.9 =ercent stake of Ferrous Resources Ltd., a closely held Brazilian =ron-ore producer, from Harbinger for $1.50 a share, four people =amiliar with the transaction said last week. That's about =ne- third of what Harbinger paid when it bought part of the firm in =008." Back to =tory Falcone Waits for Icahn =oubling Down on Network By Katherine Burton, Max Abelson and Saijel =ishan - Apr 16, 2012 Phil Falcone waited at the bar of the Post House =n New York with two colleagues and a $199 bottle of Tignanello. His =uest, Carl Icahn <http://topics.bloomberg.cornicarl-icahnk , was =ate. Falcone, the hedge-fund manager =ho has invested $3 billion in wireless broadband startup LightSquared =nc., said he hoped the vulture investor, who made billions seizing =ontrol of companies, might become a partner, according to a person at =he restaurant that night in March. It had been a difficult few =onths. On Valentine's Day, the U.S. Federal Communications Commission =aid it was preparing to withdraw LightSquared's permission to operate = nationwide network, citing interference with global- positioning =evices used in navigating everything from fighter jets to minivans. The =ompany said it was cutting 45 percent of its staff, and Chief Executive =fficer Sanjiv =huja <http://topics.bloomberg.com/sanjiv-ahuja/> resigned. In December, the Securities and =xchange Commission told Falcone it may sue him over a $113 million loan =e took from his hedge fund, Harbinger Capital Partners LLC, to pay =ersonal taxes. Then, for the second time in three years, he blocked =nvestors from exiting the fund. Weeks later Harbinger borrowed $190 =illion at an effective rate of 24 percent to repay debt. The three men at the bar =eassured one another that LightSquared could meet its loan payments =efore Icahn, in a red jacket, walked in. Treadmill, =irst Falcone is fighting to maintain =ontrol of lightSquared and reverse the biggest drop in assets in =edge-fund history -- $23 billion from withdrawals and losses. He's =oing it with the same obstinacy that led him to gamble his fund on a =tartup, then ignore signs that his plan to compete with entrenched -telecommunications companies was in danger. EFTA_R1_00080618 EFTA01769852 When backed into a =orner, the 49-year-old former professional hockey player, whose bets =gainst subprime mortgages propelled his fund to a mid-2008 peak of $26 =illion, puts his head down and charges, according to interviews with =riends, investors and Falcone himself. "This is pounding every single =ay and not giving up," Falcone said last month, sitting in a Park =venue office that features a treadmill in a bathroom and a Damien Hirst =pin painting. "I tend to be pretty aggressive." Light5quared's =reditors, including Icahn, 76, have agreed to wait until the end of the =onth before deciding whether to put the company in technical default as = result of the FCC's announcement. If Falcone, who heads the firm's =xecutive committee, can't persuade them to extend the deadline, =ightSquared could file for bankruptcy and wage war against debt holders =ho want a rapid sale of his spectrum, he said. Falcone and Icahn =ouldn't comment on their discussions. Sagaponack =ien At least $850 million of Falcone's=own money was at risk in Harbinger's main fund as of Aug. 31, loan =ocuments show, and Falcone has written down the value of LightSquared's=spectrum by 70 percent, or about $2 billion, in the past year, =ccording to people familiar with the fund who asked not to be =dentified because the valuations are private. He has halted =onstruction on a house near the beach in Sagaponack on the eastern end =f Long Island chttp://topics.bloomberg.com/long-island/> , where he owes =is former contractor $1.2 million, according to a lien filed last month =n Suffolk County. Falcone said he dismissed the contractor because of =elays. Renovations on a 27-room mansion near Central Park once owned by =ormer Penthouse publisher Bob Guccione that he and his wife Lisa bought =n 2008 for $49 million should be completed next year, he said. 'Not Losing =leep' Falcone's spectrum investment =ccounts for about 40 percent of his main hedge fund. He said he's =onsidering a legal campaign, hiring lawyers including former U.S. =olicitor General Theodore Olson, to make the case that the government =hanged the rules and undermined his business. "What's happening is =uite frankly outrageous, it's un- American, it's unfair," Falcone =aid during the interview. "You mandate me to build out a network as a =ondition to buying the company, so I go and buy the company. And now =ou're not letting me build out the network?" Falcone doesn't look =esieged. Dressed in a blue Domenico Vacca shirt and gray pinstripe =ants, he wears his collar- length hair in the same style as when he =layed center on Harvard's hockey team in the early 1980s. He sports a =eaded rainbow- colored bracelet on his right wrist and purple and pink =ne on his left, gifts from his twin, 7-year-old daughters. "I am not losing sleep =n this -- why would I lose sleep?" he said. "I still believe that =e had a great, and we still do have a great vision." 'Complete =ismanagement' 2 EFTA_R1_00080619 EFTA01769853 Some investors have lost patience =ith Falcone's vision to build a 4G network. He was sued in federal =ourt in February by Lili Schad, a Wallkill,New York, resident who said she invested $4 million =ith Harbinger and wasn't told how much of the fund's money went =nto LightSquared or that its plan faced obstacles from regulators. Lew =helps, a spokesman for Harbinger, said the fund will respond once an =mended complaint is filed next month. "This has been nothing but a =omplete mismanagement of the fund," said Peter Rup, chief investment =fficer of New York- based Artemis Wealth Advisors LLC, which invests =n hedge funds chttp://topics.bloomberg.com/hedge-funds/> for =lients and doesn't have any money in Harbinger. 'There should have =een constraints on risk and concentration of the investments." Falcone's doubling down =n LightSquared fits a pattern, said Nathan Pettit, an assistant =rofessor of management at New York University's Leonard N. Stern =chool of Business who has done research on how status colors judgment. "People of status and =ower have an illusory sense they can control more than they do," said =ettit. "That leads to unrealistic optimism, increased risk-taking and =ecreased inhibitions." Concentrated Bets Most hedge fund managers =ave shunned illiquid holdings since the 2008 financial crisis, when =hey were forced to block client redemptions to avoid a fire sale. Eddie Lampert, who runs =reenwich, Connecticut-based ESL Investments Inc., is one of the few =illion-dollar hedge-fund managers to have taken a bet as concentrated =s Falcone's. After orchestrating a 2004 merger between his two =iggest holdings, retail icons Kmart Holding Corp. and Sears, Roebuck =amp; Co., the combined company, Sears Holdings Corp. (SHLD), has tumbled 46 =ercent. Falcone started buying shares and =ebt of SkyTerra Communications Inc. as early as 2005 in a bid to =ontrol a swath of scarce radio spectrum that could be used for surfing =he Web and watching YouTube videos. In 2010, he received permission =rom the FCC to buy all of the company on the condition he build a =ireless network, using cell towers and satellites, that could serve 260 =illion Americans. 'New Driver Even then, Falcone knew =here were interference issues. He said in the interview they weren't =is to solve because GPS users were encroaching on his spectrum. "People who are in =djacent bands have to understand that there is now a new driver in town =riving on that highway," he said. "And they can't be weaving in =nd out of that highway." GPS users and government officials =eren't keen on getting out of Falcone's way. They objected after he =ought a waiver from the FCC in November 2010 to lift a requirement that =evices using his network communicate with satellites. The waiver would =et phones, tablets and computers work off nearby towers rather than =istant satellites, allowing LightSquared to compete with AT&T Inc. (T) and Verizon Communications Inc. (VZ), the two biggest U.S. =ireless carriers. AT&T Objections 3 EFTA_R1_00080620 EFTA01769854 AT&T said in a letter =o the FCC on Dec. 2, 2010, that there was "increasing concern" in =he industry about LightSquared signals interfering with GPS devices. A =onth later, on Jan. 12, 2011, the National Telecommunications and =nformation Administration wrote that the plan to use airwaves reserved =ainly for satellite communications raised "significant interference =oncerns." Deputy Defense Secretary William Lynn, then the Pentagon's No. 2 civilian, =rote a letter the same day citing "critical national security" =ssues. The letters didn't stop the FCC =rom granting the waiver two weeks =ater. The agency required that interference concerns be resolved, and a =orking group was set up to study the matter while LightSquared signed =p wholesale customers. GPS users, including Deere & Co. (DE) and Delta Air Lines Inc., =ormed a lobbying group in March to oppose LightSquared's plan. The =rganization, Coalition to Save Our GPS, said in a press release that =onth that Falcone's network posed "a serious threat" to GPS and =ecommended safeguards. 'Can't Believe =his' Senator Charles Grassley, a Republican from Iowa, told FCC =hairman Julius Genachowski <http://topics.bloomberg.com/julius-genachowski/> in =pril that the SEC's investigation of Falcone should have led the =gency "to proceed with caution rather than step on the gas."=AT&T, based in Dallas, and Verizon in New York are among Grassley's=biggest donors, according to campaign-spending tracker OpenSecrets. In June, the Federal Aviation =dministration said outdoor and laboratory tests showed that GPS =eceivers would be affected by signals from LightSquared's 40,000 base =tations. Six months later, the Defense and Transportation departments =ssued a statement <http://www.gps.govinews/2011/12/lightsquaredk , citing an FAA analysis, that said =ightSquared's signals caused "interference with a flight safety =ystem designed to warn pilots of approaching terrain." While he doesn't have =93direct evidence" of a conspiracy to thwart him, "common sense =ill tell me that it's a concerted effort on behalf of certain =ompetitors," Falcone said. "Still, to this day, I'm like, I just =an't believe this." Michael Balmoris, an AT&T =pokesman in Washington, said in an e-mail that his company has been =93strictly neutral" on the matter. Bob Varettoni, a spokesman for Verizon, declined to =omment. The Coalition to Save Our GPS said in a March 30 FCC filing =hat LightSquared relied on the "faulty premise" it had authority to =perate a nationwide ground- based network. "This is simply not the =ase and continued repetition will not make it so," the group =aid. LightSquared =91Blindsided' LightSquared was "blindsided," =aid Martin Harriman, an executive vice president who left the Reston, =irginia-based firm this year. "You've bought your really =ice house in Beverly Hills, and someone comes and knocks on the door =nd says, 'I'm sorry, but actually I'm not sure if you can =ontinue to live here,'" said Harriman, who has been named head of =usiness development at Telefonica SA's 02 unit. "You say, 'Why?' =hey say, 'Well, we just don't like it in the industry =oresaw trouble. DirecTV, the largest U.S. satellite-1V provider, looked =t LightSquared's spectrum in 2004, according to CEO Michael White. 4 EFTA_R1_00080621 EFTA01769855 "A young engineer we had went =nd tested it and said, 'It conflicts with GPS, it will never work.' =o we backed away immediately," White said in an interview. Falcone =93made a bet that the government would say, 'Sure, go ahead,' or =omehow make it right." Last-Minute Loan The December warning that =ightSquared signals could cause planes to crash came less than a week =fter Harbinger disclosed in a letter to clients the receipt of a Wells =otice from the SEC saying the agency was considering suing Falcone. The =etter also said New York-based Harbinger was halting withdrawals from =ts main fund. The disclosures led to another =risis: A deal to refinance the remaining portion of a $400 million loan =o Harbinger from Zurich-based UBS AG collapsed, he said. As a Jan. 30 deadline to =epay UBS approached, Falcone turned to investment bank Jefferies Group Inc. (JEF) for help. That weekend =alcone was in Wellington, Florida, his daughters riding horses while he =egotiated by phone. Five Harbinger lawyers worked =hrough the night in New York hammering out a deal. Six minutes before a = p.m. deadline, Jefferies wired money. Falcone agreed to pay an =ffective interest rate of 24 percent for $190 million, four times what =he riskiest corporate borrowers pay. "People say, 'Boy, why would =ou have done that loan? Look at the terms!" Falcone said. "There =ere things that happened that kind of backed me in." Harvard Hockey Falcone has had the =ighting instinct since he played hockey in Chisholm, Minnesota, where =e grew up the youngest of nine children living in a three-bedroom =ouse. His father, who moved out when Falcone was 9, never made more =han $14,000 a year as a superintendent at a local utility. Falcone threw himself =nto hockey. Harvard University recruited him, and after graduation he =layed for a professional team in Malmo, Sweden. He ended up on Wall Street in 1985 after being sidelined by a leg =njury, trading high-yield debt at Kidder, Peabody & Co. in New =ork. "He was willing to push things, =ush hard on things, and push the limit on things," said Wade Lau, a =arvard teammate who was also from Minnesota and is now an executive at =inneapolis-based real estate investor Founders Properties LLC. "Phil =ertainly had that personality as a player and, obviously, it continued =n in business." White-Truffle Pasta Falcone acknowledged his =ushiness could be a handicap. He said it was a mistake to have =old-shouldered the GPS industry. We should have "reached out and =ried to do it in a more amicable fashion, as opposed to going in and =aying they're wrong, it's their problem, they should spend the =oney to fix it," Falcone said. "We tried to bully, not bully, but =ush our way through." 5 EFTA_R1_00080622 EFTA01769856 Still, when Falcone and five =ightSquared colleagues met over a meal of white-truffle pasta and =arolo at a Washington restaurant in January, they failed to come up =ith anything they could have done differently, according to a person =ho was there who asked not to be identified because the meeting was =rivate. 'Desperate and Naïve' =p style="margin-top: 0px; margin-right: 0px; margin-bottom: 17px; =argin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: =px; padding-left: 0px; border-top-width: 0px; border-right-width: 0px; =order-bottom-width: 0px; border-left-width: 0px; border-style: initial; =order-color: initial; outline-width: 0px; outline-style: initial; =utline-color: initial; font-size: 15px; vertical-align: baseline; =ackground-image: initial; background-attachment: initial; =ackground- origin: initial; background-clip: initial; background-color: =ransparent; font-family: Georgia, 'Times New Roman', Times, serif; =ine-height: 1.6em; font-weight: normal; background-position: initial =nitial; background-repeat: initial initial; ">Falcone said he's =pending a day a week in Washington and is trying to negotiate a =pectrum swap with the military or others that would eliminate the GPS =roblem. The Pentagon won't go along, said Walt Piecyk, an analyst at =TIG LLC in New York. "A swap of spectrum isn't a =ealistic option," Piecyk said. "First, there's nothing readily =vailable and second, if there was, that's spectrum that could be =uctioned off for billions in proceeds." Falcone said if the swap =oesn't work he'll try to negotiate with GPS manufacturers to put =ilters on their devices or to use the lower end of his spectrum. Or =here's the court. "If I have to, I'll put it =nto bankruptcy, I don't care." Falcone said. " I will maintain =ontrol." Falcone faces some of the toughest =reditors in the business, said Brad Baiter, head of Boston-based Baiter =apital Management LLC, which invests client money in hedge funds. Icahn =long with investors including David Tepper, head of hedge fund =ppaloosa Management LP, have bought about $300 million of LightSquared =ebt. 'Alpha-Male Investor' "Icahn is a =ake-control, alpha-male investor," Baiter said. "Falcone is both =esperate and naïve if he thinks of Icahn as anything other than an =dversary who would wrest control of the spectrum if LightSquared went =nto bankruptcy." Icahn is nearing agreement to buy = 14.9 percent stake of Ferrous Resources Ltd., a closely held Brazilian =ron-ore producer, from Harbinger for 51.50 a share, four people =amiliar with the transaction said last week. That's about one- third =f what Harbinger paid when it bought part of the firm in 2008. Falcone, who last year =rote down the value of LightSquared's spectrum by 59 percent and cut =t about 25 percent more in February, said the losses aren't forcing =im to change his lifestyle. He has a house on the Caribbean island of =t. Barts, owns a Gulfstream V jet and said he's planning to build a =orse farm on Long Island. Mark Baron, who has known Falcone =ince they grew up in Minnesota, said his friend always seems unfazed by =dversity. "When his father left, no one =new what was going on, and it didn't seem to affect him, though I'm =ure it did," said Baron, co-owner of computer-equipment provider =ompudyne in Duluth, Minnesota. Domenico Vacca 6 EFTA_R1_00080623 EFTA01769857 One place Falcone is =isiting less frequently is Domenico Vacca, the New York boutique where suits =etail for $3,900 and shirts $490, according to a person with knowledge =f his purchases. He orders every four or five months compared with =very two or three months between 2006 and 2009, and is spending less =oney at the Madison Avenue store, the person said. Falcone said his =hopping remains the same. While one of those shirts appeared =arker under the arms in his office last month, Falcone said he doesn't =weat and didn't when checking his TW Steel watch during January's =own-to-the- wire loan negotiations. "This is not for the faint of =eart," Falcone said. "I've never looked at it as having $4 =illion or $25 billion as defining Philip Falcone. But who's to say I won't get back =o $25 billion?" 7 EFTA_R1_00080624 EFTA01769858