June 6 (Bloomberg) -- Money manager Mario Gabelli has settled a civil lawsuit claiming he defrauded the U.S. government by using ``sham'' companies to win cellular phone licenses.

The settlement was announced today at a hearing in Manhattan federal court, Heather Tasker, a spokeswoman for U.S. Attorney Michael Garcia, said. The terms weren't disclosed. Attorney Rufus Taylor III filed the suit in 2001 under the federal False Claims Act. Garcia's office recently sought permission to join the case.

Gabelli, known on Wall Street as ``Super Mario,'' is one of the highest paid executives in the financial services industry. He earned $55.5 million in 2005. His publicly traded Gamco Investors Inc., a Rye, New York-based money manager with $27 billion in assets, isn't a defendant in the suit.

``All of Gamco is predicated on Mario Gabelli's personality, persona and reputation,'' Rachel Barnard, an analyst with Morningstar Inc. in Chicago said in an interview. ``These settlements help in the sense that it gets him out of the news, but in terms of reputation, the damage cannot be undone.''

Taylor's suit stemmed from Gabelli's role in Federal Communications Commission auctions in the 1990s. The government set aside cell phone licenses to be sold to small businesses. Gabelli, 63, bankrolled ``sham'' startups that would qualify under the rules to get access to discounts, the suit claims.

$100 Million

Earlier today the Wall Street Journal online edition reported that the settlement is expected to include a payment to the government of more than $100 million, according to people briefed on the negotiations.

A lawyer for Taylor, Erika Kelton, confirmed that a settlement had been reached. She declined to comment on the terms, which will be publicly disclosed in court papers due to be filed on June 29.

Telephone calls to Gabelli and his lawyer, Lanny Breuer, were not immediately returned. Montieth Illingworth, a spokesman for Gabelli, didn't immediately return a call.

In May, Gabelli Group Capital Partners Inc., his closely held investment firm, agreed to give two of its earliest investors shares of Gamco to settle a 2 1/2-year-old lawsuit unrelated to the cell phone license case.

Biggest Gamco Shareholder

Frederick Mancheski and David Perlmutter had invested about $211,000 with Gabelli Group since 1976. They sued in 2003 to dissolve the company because it didn't allow them to sell their restricted shares. The two men claimed their stake in Gabelli Group was worth $85 million, while the company valued it at about $30 million.

Under the settlement, Mancheski received two million Gamco shares, making him the largest individual stockholder, according to a filing with the Securities and Exchange Commission.

Starting in 1995, Gabelli and his affiliates established more than a dozen companies to buy or flip wireless licenses, or invest in firms that did, according to the lawsuit. He and his associates pocketed $206 million in profits, the suit contends.

Taylor sued under a law that permits citizens who learn of a possible fraud against the government to bring a complaint on its behalf. During the 1990s, he was an associate at a Washington law firm working on bids by another telecom company.

Under the False Claims Act, Taylor would be eligible for a share of any damages awarded.

U.S. Changed Course

Gabelli and the other defendants, including Lynch Interactive Corp., a publicly traded media company of which he's chairman and chief executive officer, were notified of the complaint in 2002 and told the government wouldn't take part.

In January, the defendants and the FCC reached an agreement giving Gabelli and his associates access to documents in the case. In March, the Justice Department changed course and petitioned the judge in the case to allow it to intervene.

Lynch Interactive said in a statement that the company ``was pleased to have reached this agreement in principle to put this litigation behind us and allow us to focus our entire energy on our businesses.'' The company said terms of the settlement weren't disclosed.

Gabelli, a native of New York's Bronx borough, built a $27.6 billion money management empire on the value investing principles of Benjamin Graham and David Dodd.

Gates, Redstone

Gabelli made his name by hunting for undervalued small and midsize companies and buying stakes in media giants such as Time Warner Inc. and Viacom Inc.

Gabelli emerged unscathed from the regulatory probes that have convulsed the $9.2 trillion U.S. mutual fund industry since 2003. A vocal defender of investors' interests, he's published a ``Magna Carta of Shareholder Rights.''

Gabelli won the trust of some of the world's most powerful executives, including Microsoft Corp. co-founder Bill Gates, who bought a Gamco convertible note, which in April was equivalent to 17 percent of its Class A stock.

Viacom Chairman Sumner Redstone says he consults Gabelli for his views on the media industry.

``He was the first to recognize the strength of cable programming,'' Redstone, 82, said.

The case is Taylor v. Gabelli, 03cv8762, in the Southern District of New York.

To contact the reporter on this story: David Glovin in New York at dglovin@bloomberg.net.

Last Updated: June 6, 2006 18:28 EDT