Legendary fund manager Mario Gabelli is getting attention, but not for his stock picking ability; rather it is his ability to push the envelope on FCC rules has landed him in court defending himself in a civil lawsuit. The issue is whether Gabelli funded "sham" front companies to obtain grants from the Federal Communications (FCC) to bid on radio spectrum licenses for cellphones in the late 1990s.

The case drew the attention of the Wall Street Journal Tuesday morning. An individual brought the suit under the False Claims Act on behalf of the Federal government. The suit claims that Gabelli improperly received $90 million of federal discounts and financing breaks on federal loans worth $70 million and is seeking triple damages of $480 million and the return of $206 million in profits.

The federal government would share any judgment with the plaintiff on a three to one split.

Under the rules created by the FCC for the auction, those firms that received grants could not be a front for another company, but had to be active entrepreneurs. However, the rules also allowed them to receive funding and loans from bigger companies.

According to the article, at least a dozen Gabelli backed companies that won 96 FCC licenses in eight separate auctions. In many cases, those companies flipped the license for a quick profit after taking advantage of government programs intended to benefit small businesses. Gabelli typically took a 49.9 percent stake in the firms with someone from his personal, social or business network owning the majority of the firm.

Most of the money for the ventures was provided by Gabelli, according to the paper, and Gabelli took the majority of the profits. The paper also claims that unsealed court records show that some entrepreneurial bidders did not control their bank account (Gabelli did) or have check writing authority. One bidder reportedly told the court that she did not know what the radio spectrum was.

One of the Gabelli-backed bidders was Trent Tucker, the former New York Knicks forward in the NBA.

Lanny Breuer, a partner at Covington & Burling which representis Gabelli, told the paper that the suit is without merit.

Breuer has already won one fight for Gabelli. In a ruling last month, the judge hearing the case ruled that the plaintiff cannot recover the $206 million in alleged profits stemming from the deals. Instead, she ruled, the federal government must file a separate suit to recover the monies.  

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