NYAG Hedge Fund Tax Abuses


On Apr. 18, NYAG issued $40mn settlement with Harbert fund for tax.


  • Settled with Harbert Management Corporation and top executives at the firm, re tax.
  • Alleged Violations
  • Charged members of company failed to pay millions in NY taxes over several years.
  • Resolved whistleblower allegation of failure to pay taxes on its performance income.
  • Settlement is the largest NYAG tax-related recovery, filed under NY false claims act.
  • State Tax Apportionment
  • Businesses operating both in and out of NY, must apportion the total income for tax.
  • Based on the part of their income which derives from or is connected with New York.
  • Firm sponsored Harbinger Capital Partners, a $26bn hedge fund, based in NY City.
  • Alabama corporation hired Philip Falcone as the primary investment decision-maker.
  • Offshore affiliate served as investment manager for the Fund from 2002 until 2009.
  • Falcone and other in team, operated at offices located at 555 Madison Avenue, NYC.
  • Offshore manager earned performance fee income of 20%, of the fund’s net profits.
  • False Tax Filings
  • Offshore manager’s controller signed tax return that apportioned 0% income to NY.
  • Despite, accountants' initial assessment about the tax liability, that NY tax was due.
  • Instead, offshore manager apportioned all fee income to lower-tax state of Alabama.
  • Where back office and support functions for the Harbinger Fund were all conducted.
  • Tax return did not mention existence of NY offices, listing only the Alabama address.

Regulators NYAG
Entity Types Auditor; HF; IA; Inv Co
Reference LR, PR, 4/18/2017
Functions Accounting; Financial; Reporting; Tax
Countries United States of America
Products Fund Mgt; Hedge Funds
Regions Am
Rule Type Enforcement
Rule Date 4/18/2017
Effective Date 4/18/2017
Rule Id 31900
Linked to N/A
Report Issue 5/1/2017
Report Section AML & Enforcement

Last substantive update on 04/18/2017