Philip Falcone, one of Wall Street’s most prominent distressed-debt investors, has just received a dose of his own medicine from a veteran in the field, Carl Icahn.

Mr. Icahn has been quietly buying up debt of Mr. Falcone’s wireless-network company LightSquared Inc., according to people familiar with the matter, swooping in after the debt plunged in value late last year amid regulatory delays.



‘Carl is certainly entitled to his opinion, as I am entitled to disagree with it.’ —Philip Falcone

The move could enable Mr. Icahn to have a say in the running of the troubled company, putting him on a collision course with Mr. Falcone.

The entrance of Mr. Icahn adds to a list of headaches for Mr. Falcone as he fights for regulatory approvals that would let LightSquared set up service. LightSquared said Wednesday that it has only enough cash to last the next few quarters.

Investors have been betting that LightSquared may run out of cash before it gets service running. Loans of LightSquared, which trade on the market like securities, tumbled from 100 cents on the dollar in June to about 40 cents on the dollar in December. One loan owner, Farallon Capital Management LLC, sold $300 million of loans in December, some of which were snapped up by Mr. Icahn. The rest were bought by David Tepper and Andrew Beal, also two veteran distressed investors.

Mr. Icahn is well known for rocking corporate boardrooms. One tool he has used is to buy up cheap stock and debt of companies he believes may be headed to bankruptcy court, such as Trans World Airlines, Marvel Entertainment Group and, more recently, Trump Entertainment Resorts. When they do file, he uses his investments to take control of the business. It isn’t clear whether Mr. Icahn is following a similar strategy with LightSquared, and Mr. Icahn declined to comment.

When asked about Mr. Icahn’s investment via email, Mr. Falcone said: “Carl is certainly entitled to his opinion, as I am entitled to disagree with it.”

Officials for Farallon and Mr. Beal’s bank, Beal Bank, declined to comment. Mr. Tepper didn’t return requests for comment.

Many of Mr. Icahn’s contemporaries from the 1980s and 1990s—Ira Rennert, Charles Hurwitz and Ivan Boesky, among others—have since hung up their corporate-raider spurs. But the 75-year-old Mr. Icahn remains an active trader in the distressed-debt market.