Getnick & Getnick and Labaton Sucharow Secure Major False Claims Act Settlement in Philip Falcone Hedge Fund Tax Case

Getnick & Getnick LLP and co-counsel Labaton Sucharow LLP have secured a major settlement in the second stage of the largest ever tax whistleblower recovery in New York state history. New York Attorney General Barbara Underwood announced the $30 million settlement today. It follows a related $40 million settlement in April 2017, bringing the total recovery to $70 million.

The Relator, whose identity remains protected, will receive 22 percent of todays settlement ($6.6 million).

In the matter announced today, Getnick and Labaton represent the Relator in a tax evasion case brought against Harbinger Capital Partners Offshore Manager LLC, the investment manager for New York-based hedge funds run by Philip Falcone from 2002 to 2009. The case alleges that the defendants evaded New York State and City taxes by shifting income derived from Harbinger from New York to Alabama to avoid New Yorks higher tax rates. The previous settlement announced in April 2017 was with Harbert Management Corporation, an Alabama-based investment company that had an investment and business relationship with Harbinger Capital Partners Offshore Manager.

Todays announcement includes a superseding complaint brought by the Attorney Generals office that reveals the details of the allegations. The complaint states, Because it carried on its business in New York, Offshore Manager had a clear obligation under New York State Tax Law to apportion and allocate income as taxable in New York State, but instead apportioned 100 percent of its income to the state of Alabama, which had lower tax rates than New York.

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The complaint also states,¦Offshore Manager systematically camouflaged its New York presence¦

In addition, the complaint states, Offshore Manager made profits remarkable even by Wall Street standards but failed to pay what should have been paid to the city and state where it made these profits and misled tax authorities to ensure that it would not have to pay its fair share.

The Attorney Generals Office has announced that its investigation into the conduct at issue in this matter continues.

Todays settlement adds substantially to the recovery for the state and reveals the extent of the potential liability for hedge funds with multi-state operations and the vigor of the states tax enforcement efforts, said Neil Getnick, managing partner of Getnick & Getnick.

The Attorney Generals Office did an extraordinary job working with us and our client to bring the second stage of this complex case to conclusion, again illustrating the value of the public-private partnership established by the New York False Claims Act and the New York AGs particularly innovative approach to its implementation, said Jordan Thomas, Chair of Labatons Whistleblower Representation practice.

The case was filed under the New York False Claims Act, which was amended to cover tax claims in 2010. Todays press release from the New York Attorney General is here.

Getnick & Getnick is a Manhattan-based law firm dedicated to fighting fraud and promoting business integrity. The firm works with whistleblowers, government agencies and companies, guided by the principle that anti-fraud is not anti-business. The firms whistleblower cases have recovered more than $1 billion for taxpayers, and clients have received record awards, including the largest ever award for a single whistleblower.

Labaton Sucharow LLP for more than 50 years has been one of the country’s premier law firms representing businesses, institutional investors, and consumers in complex securities and business litigation. The firm established the first national practice exclusively focused on SEC whistleblowers under the leadership of a principal architect of the SEC’s whistleblower program. Consistently ranked among the top plaintiff litigation firms, more information about the firm is available at www.secwhistlebloweradvocate.com.

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