It sure beats the alternatives.

Hedge-fund honcho Phil Falcone — accused of taking out an improper $113 million loan to pay a personal tax bill — plans to fight the charges by arguing that his other options carried greater risks for investors.

On Thursday, the Securities and Exchange Commission slapped Falcone with civil fraud charges, accusing him of spending up a storm in 2009 despite the looming tax bill — and then dipping into a fund he had just barred investors from tapping. The SEC claimed Falcone could have borrowed against his personal assets but didn’t want to crimp his lavish lifestyle.

The first glimpse of Falcone’s defense strategy reveals the 49-year-old founder of Harbinger Capital Management plans to knock down the allegations by claiming that the alternatives, such as withdrawing his money from another fund, could have created even bigger headaches for investors, according to a person familiar with Falcone’s...