Falcone to Face SEC Lawsuit: Report

Story updated with a comment from Phillip Falcone's attorney.

NEW YORK (TheStreet) -- The Securities and Exchange Commission is reportedly set to file a lawsuit against Harbinger Capital Partner founder Phillip Falcone.

According to Bloomberg News, the regulator plans to claim that Falcone illegally borrowed client money to pay taxes and created a sweetheart deal with Goldman Sachs to exit his flagship fund.

SEC commissioners have voted to allow the staff to move ahead and file a lawsuit, Bloomberg says, citing anonymous sources close to the matter. The sources added that the SEC may also push for "market manipulation" charges against the billionaire hedge fund guru in relation to bond investments in MAXX Holdings group.

Harbinger Group Phil Falcone

Harbinger has been the focus of federal scrutiny for over a year after it was reported that Falcone used a $113 million loan in 2009 to pay personal taxes. The SEC investigation focused on whether the loan -- which was eventually revealed -- was disclosed in a timely fashion, according to the Wall Street Journal..

Falcone has also been targeted over a decision that allowed Goldman to cash out of his failing fund while other investors were still locked up, and whether Harbinger improperly traded MAAX Holdings bonds, the Journal said.

Harbinger and Falcone have faced massive losses over the past year as a bet on high-speed wireless went south after 4G wireless provider LightSquared declared bankruptcy and wiped out most of Harbinger's near-$3 billion investment.

"Any allegations by the SEC of impropriety by Mr. Falcone or Harbinger are supported neither by the facts or the law," according to a statement from Matthew Dontzin, counsel for Falcone. "Should a lawsuit be brought it will be contested vigorously."

--Written by Christopher Westfall in New York.