Billionaire Philip Falcone’s hedge fund, Harbinger Capital Partners, has been told it may be sued by US regulators for securities-law violations and said it plans to halt investor withdrawals at year-end, media reports said.

Falcone, along with fund executives Omar Asali and Robin Roger, the general counsel, have received what are called Wells Notices from the staff of the US Securities and Exchange Commission, Harbinger said in a client letter, reports said.

The threat of legal action comes on top of other problems for Falcone. His hedge funds, now with assets of $5.7 billion (source: Bloomberg), have plummeted from $26 billion three years ago.

Last week, this publication reported that most hedge funds lost ground in November and for the fifth time in the last seven months in what has been a torrid time for the $2 trillion-plus sector, as funds struggled to decide strategy with uncertainties engulfing the eurozone. Data also showed new fund launches declined in the third quarter of 2011.

Harbinger is being investigated by the SEC and the US Attorney’s office over a $113 million loan Falcone took from one of his funds. The probe also examined possible preferential treatment of some investors, two people with knowledge of the probe said last year.

The SEC’s notices relate to alleged “violations of the federal securities laws’ anti-fraud provisions in connection with matters previously disclosed and an additional matter regarding the circumstances and disclosure related to agreements with certain fund investors,” the New York-based hedge fund said, according to Bloomberg.

Harbinger said it “anticipates” withdrawals from its main hedge fund will be suspended effective 30 December, according to a letter sent to clients on 9 December, reports said.