The Securities and Exchange Commission said that it agreed to settle its lawsuit against two defendants in the widening federal insider trading probe centered on the hedge fund Galleon Group.

Defendants Ali Far and Richard Choo-Beng Lee, the founder and former president of California hedge fund Spherix Capital LLC, agreed to pay a combined $2.1 million to settle the SEC's
civil complaint, the commission said Monday in a filing with the Manhattan federal court.

It said this sum includes $1.43 million reflecting improper trading gains or avoided losses, including interest, and a $668,000 civil fine. The SEC said the penalty "would resolve all issues in this action" concerning the defendants, and that the fine reflected "their cooperation."

The settlement requires court approval.

Far and Lee are among at least seven people to plead guilty to criminal charges in what the government has called the largest hedge fund insider trading case on record.

Each pleaded guilty last October to one count of securities fraud and one count of conspiracy to commit securities fraud.

Jeffrey Bornstein, a partner at K&L Gates LLP in San Francisco who represents Lee, confirmed his client's settlement, and said much of the money being disgorged "was actually distributed to investors, and was not retained by Spherix." He said Lee is still cooperating with prosecutors.

Francisco Navarro, a lawyer representing Far, did not immediately return a call seeking comment.

Prosecutors said Far and Lee obtained inside information about companies in exchange for cash payments and insider tips about other companies. The defendants used tips they received to generate more than $5 million illegally for brokerage accounts affiliated with Spherix, prosecutors said.

Far resides in Saratoga, Calif., and Lee in San Jose, Calif., prosecutors have said.

Raj Rajaratnam, Galleon's founder, was indicted last month as part of the government probe. He pleaded not guilty.