The psychopath penalty

We seem to be approaching Peak Star Hedge Fund Manager these days – one after another, big-name managers are getting caught out for misbehavior. The latest, from Bloomberg:

Philip Falcone, the billionaire founder of Harbinger Capital Partners LLC, faces a lawsuit from U.S. regulators as soon as this week over claims he improperly borrowed client funds to pay his taxes and gave preferential treatment to Goldman Sachs Group Inc., according to two people familiar with the matter.

Falcone, 49, may also face a market manipulation claim related to trading in bonds of MAAX Holdings Inc., said the people, who asked not to be identified because the matter isn’t public. The Securities and Exchange Commission voted to authorize enforcement staff to file the case, the people said.

It’s not only clients who bear the cost of this behavior (and in the case of Paulson, even the fund manager was relatively unscathed) — the employees of these firms are often rendered toxic on the job market, regardless of their role at the firm. That’s an awful lot of human capital going to waste.

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