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Phil Falcone gets a babysitter

Philip Falcone, chairman and chief executive officer of Harbinger Group Inc.
Jacob Kepler | Bloomberg | Getty Images
Philip Falcone, chairman and chief executive officer of Harbinger Group Inc.

Legally troubled hedge fund manager Phil Falcone officially has help to salvage his once-$23 billion Harbinger Capital Partners.

Jim Dunning has been appointed as an independent monitor for Harbinger over two years, according to a letter sent to Harbinger investors on Feb. 6.

Dunning is head of middle market private equity firm Dunning Group, which he founded in 1992. The firm specializes in media, energy and other leveraged investments.

Dunning was selected from five candidates Harbinger presented to the Securities and Exchange Commission as part of Falcone's 2013 settlement with the agency. Falcone was barred from the securities industry for five years and agreed to pay an $18 million fine for market manipulation and favoring some investors over others.

(Read more: SEC, Falcone reach new settlement deal after first rejection)

The firm's assets had fallen to about $3 billion earlier in 2013. While Falcone is temporarily barred from managing money, he is allowed to help manage the funds and honor client redemption requests with the help of a third party.

"Jim Dunning was among the slate of independent monitor candidates proposed by Harbinger Capital. We are pleased with the court's approval of Mr. Dunning, and look forward to working cooperatively with him," Matthew Dontzin, a lawyer at Dontzin Nagy & Fleissig for Harbinger, said in a statement to CNBC.com.

(Read more: Judge OKs SEC's Falcone settlement with admission of wrongdoing)

Falcone's last big bet was on budding wireless communications group LightSquared. The company declared bankruptcy in 2012 but there's still a fight over ownership with Falcone seeking to retain control. Others involved include Dish Network and hedge fund firms Fortress Investment Group, Aurelius Capital Management, Cyrus Capital Partners and Solus Alternative Asset Management.

(Read more: Ergen to be in on LightSquared bankruptcy loan)

Some investors have already dumped their Harbinger holdings on the secondary market, selling them at a discount to other investors looking for a bargain. It's unclear how much money has been requested back from Harbinger.

—By CNBC's Lawrence Delevingne. Follow him on Twitter @ldelevingne.

Correction: a previous version of this story incorrectly said that Harbinger's funds are being liquidated, per an out of date SEC statement. The funds are in fact not liquidating entirely; rather, some assets are being sold to honor redemption requests.

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