Phil Falcone, Harbinger Capital and LightSquared

HARBINGERPhil Falcone’s Harbinger Capital Partners has made a lot of profitable calls in the past, but the firm has been struggling to keep its numbers up lately. It went from making $11 billion in 2007 betting against subprime mortgages and returning 116% that year to losing more than half its value the next year. Harbinger rebounded in 2009 to return 42%, but in 2010 it lost 12% – and 2011 was even worse. Harbinger’s main fund lost 47% last year.

This year isn’t looking much better. According to Reuters, Harbinger’s flagship fund lost almost 30% in February, while the Harbinger Capital Partners Fund II fell 26.7% in the first two months of the year. Compared to its peers, the average fund gained 1.72% in February and was up over 4% for the first two months of the year.

And, there is no reason to think that things will be improving for the fund anytime soon.

“For Falcone’s investors there seems to be little good news on the horizon however. February’s poor performance numbers follow similarly bad numbers for 2011 when the fund lost 47 percent because the LightSquared investment had to be revalued,” writes Reuters. “Investors and outside analysts said the most recent numbers could suggest that Harbinger was forced to write down the value of LightSquared even more this year, leaving its carrying value at a little over half a billion dollars now. It had once been closer to $3 billion.”

LightSquared is a company that developed a technology which would allow it to use the nation’s global positioning systems (GPS) to provide wireless service to customers in areas where there are no cell towers or coverage is poor. However, developing a technology and being able to use it are two very different things. “Since the government’s warning that LightSquared would not be allowed to continue its build out, the Reston, Virginia-based company has had to lay off scores of employees and replaced its chief executive officer,” wrote Reuters. “Falcone, who has bank rolled the company by having invested over $3 billion, however held out hope for LightSquared’s future when he told investors on an investor call in mid-February that he remained committed to the project.”

The value of the portfolio is marked by by outside auditors, so it is out of Falcone’s control. Falcone has said that he believes the revaluation is only temporary – but could it just be wishful thinking?

Right now, LightSquared doesn’t even have a network. The startup had partnered with Sprint Nextel (S) agreeing to pay “$9 billion and issue an additional $4.5 billion in service credits in exchange for building and operating the network.” But, the deal hinged on FCC approval. When LightSquared didn’t get it, Sprint ended the deal.

LightSquared is reportedly going to continue trying to find a way to make it work and Sprint has said that they would reopen talks with LightSquared if it gets the necessary approval, but the outlook is still pretty bleak. LightSquared is laying off almost half of its 330 member staff – and then what? The company is claiming that the FCC’s tests were biased so only time will tell whether LightSquared will ultimately be able to get the approval it needs.

But, what if LightSquared never gets its approval? How much more will Falcone invest in what looks to be a sinking ship? Throwing good money after bad is generally not a good idea but sometimes investment is needed to turn things around. Is that the case here? Falcone obviously believes in LightSquared. We aren’t too sure, but we will be following the events as they unfold. After all, should LightSquared get approval, it would be able create a network that served roughly 260 million people – and that could change everything.

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