Prominent hedge-fund manager Philip Falcone has rejected a Securities and Exchange Commission settlement offer that would have banned him from the securities industry and essentially ended his career, people familiar with the matter said.
The move by SEC officials to reach a settlement came before an affiliate of Mr. Falcone's firm, Harbinger Capital Partners LLC, disclosed in a securities filing Dec. 9 that he and two senior executives have been warned by the SEC they could face civil-fraud charges.
An SEC spokesman declined to comment. A Harbinger spokesman said "any comment on settlement talks would be inappropriate."
The SEC's push for a multiyear ban on the 49-year-old billionaire from the hedge-fund industry is a sign of how seriously agency officials view alleged misconduct by Mr. Falcone that is now being investigated, people familiar with the matter said.
Mr. Falcone rose to prominence in 2007 with lucrative bets against subprime mortgages, and he is known for both big gains and big losses. The SEC is scrutinizing his hedge-fund business on three fronts, according to regulatory filings.
In March, Harbinger said it was under investigation by the SEC for possible market manipulation. The agency also said it was probing a loan Mr. Falcone took out from the fund in October 2009.
In the firm's regulatory filing earlier this month, Harbinger disclosed an unspecified third issue related to agreements with certain investors.
The Wall Street Journal has reported that the third matter is tied to whether Harbinger improperly agreed to allow some investors, including Goldman Sachs Group Inc., to cash out of their holdings, while barring other clients from withdrawing their money, according to people familiar with the matter.
An SEC multiyear ban likely would make it impossible for Mr. Falcone to continue running his hedge fund as a hands-on operation. Such a ban likely would include barring him from managing assets of the investors in his funds, people familiar with the matter said.
If Mr. Falcone agreed to an exile, it also would threaten his bet on LightSquared Inc., a new wireless-communications firm.
Mr. Falcone is trying to win crucial regulatory approvals for LightSquared but faces resistance from some lawmakers, including Sen. Charles Grassley (R., Iowa).
In a letter to Mr. Grassley in July, the chairman of the Federal Communications Commission, which will decide on granting crucial broadcasting spectrum allocations to LightSquared, said it had a "character policy" that is part of licensing decisions.
The regulator "will consider certain forms of non-FCC related misconduct," the letter said. The letter noted that the FCC usually doesn't consider allegations that haven't resulted in a conviction.
An FCC spokesman couldn't be reached for comment Thursday. Mr. Falcone and Harbinger haven't been charged.
The SEC's determination to push Mr. Falcone at least temporarily out of the business where he made his name and fortune comes amid pressure on the agency from lawmakers to show it takes a tough enforcement stance.
"The SEC has a varied but limited number of sanctions, and it's certainly under pressure to be drawing on its entire arsenal, and that includes industry bans as well as monetary penalties," said Daniel Richman, a law professor at Columbia University.
Bans have been part of some civil-fraud settlements reached by the SEC recently. In September, Barr Rosenberg, the co-founder of investment-management firm AXA Rosenberg Group LLC, agreed to a lifetime bar from working in the securities industry.
The SEC accused Mr. Rosenberg of concealing an error in the computer code of the investment model his firm used to manage client assets. Mr. Rosenberg didn't admit or deny wrongdoing.
Harbinger's assets hit $26 billion in 2008 as investors flocked to the fund, but setbacks since then include investment losses and client withdrawals. In the third quarter, Harbinger's assets fell to less than $5 billion, according to investor documents.
LightSquared has been beset by technical challenges and accusations of trying to improperly influence regulators. The company has denied any wrongdoing.
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