NEW YORK (FORTUNE) - Mario Gabelli is doing what he does best: talking.

The billionaire money manager is chatting amiably over the phone about the wave of criticism that's been directed at him lately as a result of a pair of scandals.

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A legal dispute with his original financial backers has focused attention on both the governance of his publicly traded mutual fund company and his exorbitant pay package - $55 million of disclosed income in 2005 alone. And a civil suit involving the Justice Department and the Federal Communications Commission that alleges he fraudulently manipulated FCC auctions for cellphone licenses intended for minorities and small-business owners has, at best, raised questions about his business ethics.

But Gabelli is having none of it. He has long fashioned himself a telecom expert, indeed, a pioneer of sorts. And as he holds forth on the FCC matter, he enthusiastically recalls long-ago meetings with wireless executives and brags about his bona fides on the topic of cellphone auctions.

"I was the very first guy on Wall Street to author a research report on wireless auctions, way back in 1982," he says triumphantly. Yet minutes later, when asked more specifically about the FCC suit, he seems to remember the details of his legal position and offers an absurd reversal. "Me? I have no wireless expertise," he says. "I don't even use a cellphone."

In an earlier stage of his career, such bumbling might have come off as endearing. Just Mario being Mario. ("Mario talks faster than he thinks," one of his friends says.)

The fertile mind, the hiccup-quick wit, the supreme confidence - all that plus his ardent pursuit of media attention have made him a favorite of the business press for a generation. His high profile, in turn, has helped make him perhaps the most famous mutual fund manager working today.

Sure, he's always had an ego--and a controlling, hypercompetitive streak. But it all went into the persona of "Super Mario," as he is often called on TV and in print, who is always ready with a cute quip or a stock tip.

In the context of recent events, however, self-contradiction can't help but seem a little tragic.

Suddenly, at a time in his life when the 63-year-old should be reveling in his tremendous professional success, he is embroiled in scandals of his own making that threaten to undo everything he's built. In May, Gabelli, who oversees around $27 billion in assets at his publicly traded Gamco Investors, reluctantly settled - at a cost of some $100 million - the lawsuit with his original investors.

The same month a proxy advisory group representing some of Gamco's big investors protested Gabelli's lofty pay. Then, in the first week in June, Gabelli and his fellow defendants agreed to a settlement in the FCC case - which is expected to cost him another $100 million or more.

For Gabelli, the majority shareholder of Gamco (Research), it has been an expensive few months indeed. Still, if any of it has gotten to him, he's not admitting it. "Look, lawsuits come and go," he says. "What I care about is making money for my investors."

That hasn't happened much lately. Under the cloud of these legal disputes, Gamco's stock--which had significantly outperformed the broad market since the company went public in 1999 - fell 27% from its 2006 high in January, erasing $380 million in market value.

Investors in his mutual funds have not been faring well either. Over five years through the end of May, on average all Gabelli and Gamco funds tracked by Morningstar have trailed 57% of their peers. Gabelli's biggest fund, the $2.3 billion Gabelli Asset, posted a 7% annual return during that period, lagging 63% of its peers (though several smaller funds have done well).

Since 1999, mutual fund tracker Morningstar has graded Gabelli's funds a lousy "D" when it comes to stewardship, citing Gabelli's high pay, tight control, and high fees. Meanwhile Gamco's total assets under management have slipped, falling $2 billion in 2005, to $26.8 billion.

For now, Gamco remains highly profitable, and Gabelli himself remains defiant. "When they think back 100 years from now, Ted Williams will still be a great ballplayer," he says, adding he has 20 more years to prove "we are a great investor."

But all the turmoil can't be helping the Gabelli legacy. He's worked tirelessly for years to promote and control his image as an elite value investor, philanthropist, and crusader for shareholder rights. The danger is that his legal problems may create the impression of someone quite different: that of a tawdry wheeler-dealer who uses byzantine corporate structures to obfuscate his own greed.

Gabelli is in top form over lunch at Asiate, a tony restaurant on the 35th floor of the Time Warner Center in Manhattan with sweeping views of Central Park.

He couldn't be more charming: Would his guest like the seat with the good view? How old are her children? Where do they go to school? He's immensely likable. "Mario has the ability to be charming or he wouldn't have gotten where is," says Rick Walton, who once ran Gabelli's investment-management business. "He pulls that face out when he has to."

The other face of Mario - the battler who hates to give an inch, ever - was described in the 2003 lawsuit filed by his original investors, Frederick Mancheski and David Perlmutter, which became public last fall. The two claimed that their original investment of $75,000 in Gabelli's business back in 1977 should have been worth well over $100 million.

But Gabelli didn't issue shares to his backers when he spun off his fund company Gamco (known until January as Gabelli Asset Management Co.) in 1999. And Mancheski and Perlmutter charge that Gabelli would only allow them to sell their shares in his holding company, GGCP Inc., to him - at his own low-ball price.

The two investors, both of whom declined to comment to FORTUNE, accused him of "looting the assets" of GGCP by paying himself 20% of the company's pretax profits on top of what they described as exorbitant fees for running Gamco - the main business of GGCP. Gabelli denies receiving or taking any improper compensation.

While the accusations by Mancheski and Perlmutter suggest a lack of generosity on Gabelli's part, the details of the FCC auction dispute are even more problematic.

Gabelli and one of his firms, Lynch Interactive, were accused of misleading the FCC to score wireless, or cellphone, licenses reserved for minorities and small-business people without expertise or high-powered financial backing. Gabelli allegedly put friends and family members in charge of more than a dozen shell companies that Lynch backed in order to win licenses at a 25% government discount.

His plan was allegedly to flip the licenses and make a killing, which he and his affiliates did: $206 million, according to court documents. Though Gabelli and his lawyers filed documents with the FCC showing Lynch was 49.9% owner of the special entities supposedly run by his friends, he is accused of controlling the companies.

He allegedly set up elaborate payout schemes with the alleged shells. When one communications entity was sold for $99 million, Lynch collected $73 million. Gabelli denies he was in "de facto" control of the companies. His attorney Lanny Breuer, a White House counsel in the Clinton administration, has said that Gabelli complied "in every way with FCC auction rules during every step of the process."

Among Gabelli's friends and acquaintances who bid in the auctions were Trent Tucker, an African-American former pro basketball player and a Gabelli client; Nara Cadorin, an 82-year-old former Gabelli secretary; and Jennifer Caiati, who worked in her family's furniture business and, when giving a deposition in the case, said she didn't know what "FCC" stood for. (None could be reached for comment.)

A particularly unlikely candidate for the auction was Victoria "Tory" Kane. Tory and her husband, Theodore Gibbs "Gibb" Kane, have long been good friends of Gabelli's. Gibb is a founding partner of Sound Shore Management, a money manager in Greenwich, Conn., with about $7 billion in assets.

A seasoned yachtsman who owns a Baltic 43 sailboat called Mutiny that resides at the prestigious American Yacht Club in Rye, N.Y., Gibb was listed as an officer in several of the alleged shells. Gabelli says that in the early '90s, Tory, a former aerobic-dance instructor, told him she wanted to get into the wireless business. "I thought, 'She's perfect,' " says Gabelli now. " 'I don't need someone who knows about wireless. She'd be a very good marketer.' " (In 2003 Cingular purchased three of the licenses awarded to Tory Kane.)

Gabelli is no doubt regretting his decision to partner with his country club friend.

Sources say that in March his lawyers were close to negotiating a settlement well under $100 million. But the Kanes, who long ago hired their own lawyer, tried to extricate themselves from the case, which derailed the deal, according to sources close to the litigation. (The Kanes did not return phone calls.) The Kanes and other defendants are now bickering about how much they as opposed to Gabelli should pay in legal fees. The settlement includes all the defendants.

Central to the legend of Super Mario is that he's a self-made man who grew up in the hardscrabble Bronx, a fact that he never tires of pointing out.

"One of the things Mario constantly brags about is his street smarts," says former employee Walton.

Gabelli's parents were Italian immigrants who settled in New York. His father worked as a cook at Luchow's, a celebrated Manhattan restaurant, and his mother was a homemaker. In high school Gabelli hitched rides to Westchester County, where he worked as a golf caddy at top country clubs like Winged Foot and Sunningdale - and met successful men who talked about investing in stocks.

In college at Fordham University, where he graduated summa cum laude, the then-redheaded Gabelli stood out as a brash entrepreneur who always seemed to have a new get-rich-quick scheme, like hawking flashlights out of his car's trunk during a brownout.

Gabelli got hooked on value investing at Columbia University's Graduate School of Business in the mid-1960s, where he studied under a disciple of Benjamin Graham and David Dodd, authors of the seminal book Security Analysis. Among his carpool buddies from the Bronx were fellow students Leon Cooperman, who today runs hedge fund Omega Advisors, and Art Samberg, now president of Pequot Capital Management.

Gabelli's first job was covering autos and farm equipment with the now defunct brokerage firm Loeb Rhodes, taking over from Michael Steinhardt, who would become a successful hedge-fund manager. "I replaced Steinhardt's thin research files with my thick ones," Gabelli jokes with typical bravado.

He opened his own money-management firm in 1977, and nine years later, at the encouragement of one of his avowed idols, Fidelity's Peter Lynch (who, like Gabelli, got hooked on the markets while caddying), introduced his first mutual fund. His timing was spot on.

Not only did Gabelli ride the bull market, he caught the financial-media wave just as it was taking off. He realized early that his charismatic, quirky personality made for good TV and set out to aggressively boost his image, thereby promoting his funds.

Mario knows name recognition: After Bill Gates, through his private investment firm, Cascade, bought a $100 million convertible note from Gabelli's company in 2001, Gabelli made him a fixture in his slide-show talks to investors.

Gabelli earned much of his reputation as a stock picker during the merger mania of the '80s, showing a keen aptitude for identifying takeover candidates, particularly media companies. (Gushing about his 55 appearances as a Squawk Box co-host on CNBC, he says, "They call me Dr. Love, because I'm the guy who just loves it when companies court one another.")

He scored big with companies like LIN Broadcasting, which was sold to McCaw Cellular Communications in 1990, and Chris Craft, the boat company that bought up television stations and was purchased by News Corp. in 2001. He labeled his method PMV, which stands for Private Market Value.

The idea built on Graham and Dodd's basic principle of finding stocks trading below their intrinsic value, and borrowed a concept from Warren Buffett: adding a premium for valuing them as a whole. To sum up his contribution, he concocted a slogan: "Graham & Dodd + Buffett = Gabelli." He also claims to have coined the term "catalyst" relating to value investing and even trademarked the slogan "PMV with a Catalyst."

Gabelli's penchant for associating himself with value-investing heroes continues to this day.

For the past two years he has had Gamco sponsor an award named after his favorite Columbia Business School professors - the Graham & Dodd, Murray, Greenwald Prize for Value Investing - though everyone knows it, naturally, as the Gabelli Prize.

In May, Gabelli messengered to FORTUNE's offices some documents, including a photocopied page from Berkshire Hathaway's annual report. It listed the return of Warren Buffett's Geico Equities vs. the S&P 500 from 1980 through 2004. In a separate column, returns for a selection of Gamco accounts were clumsily scribbled in for each year, showing an average annual gain over the period of 19.8%, vs. 20.3% for Geico.

Was this meant to imply that he was on the same level as the master? "Warren is unique, a Six Sigma event," says Gabelli. "He is one of the greatest value investors. We don't compare ourselves to him." But then he does it anyway: "What we are in the public markets, he is in the private market."

Gabelli's management firm is based in Rye, N.Y., but he lives across the state line in Greenwich, one of the wealthiest zip codes in the country.

In Greenwich the old-money families often reside in stately houses with impeccably landscaped lawns near Long Island Sound. Those who made their fortunes more recently, typically hedge fund types, often live in the leafy, rolling backcountry hills in huge hidden estates.

Gabelli has made his home in both areas, but today he lives Sound-side with his second wife, Regina Pitaro, 51, who has worked at Gamco for 22 years and now runs the institutional client business. (Gabelli and his first wife, Elaine, the mother of his four children, divorced over a decade ago.)

He also has a house in Moose, Wyo., where he likes to go fly-fishing. Several years ago he bought a 500-year-old farm near Reggio Emilia in Italy that previously had been in his family for generations.

On a Monday in early May, the Greenwich public library played host to Gamco's annual meeting. At 8:25 A.M., as startled attendees continued to trickle in, checking their watches, Gabelli abruptly started the meeting some five minutes early.

Dressed as usual in a gray tailored suit with a crisp, white, no-nonsense shirt and conservative tie, he moved through the agenda at a rapid pace. Despite the bad news hanging in the air that day - aside from the two lawsuits, a proxy advisory firm had recommended just days earlier that the board vote down Gabelli's reelection because of his pay - Gabelli didn't utter a word about these troubles.

He narrated a playful slide-show presentation for the crowd of 40 or so. And he spent several minutes trumpeting what he called an "independent academic study by the University of Miami" that described Gabelli Value Separate Accounts (GVSAs) as a better performer than any domestic equity mutual fund on a risk-adjusted basis from January 1978 to June 2005. Then suddenly the whole event was over after just 45 minutes.

In some ways it was a vintage Gabelli performance: glib, smooth, in control. But there was also a sense of tension - a rush, it seemed, to get off the stage before any tough questions were asked. And yet the masterful Mario still found a way to put his foot in his mouth.

That "independent academic study," it turns out, was actually paid for by Gamco and published by a firm called Biscayne Consulting. In a letter to Gamco, Biscayne states that the report was done "in cooperation" with University of Miami faculty members; Gabelli happens to be a contributor to the University of Miami's business school, endowing a scholarship program in his name.

As for the performance comparison itself, GVSA is not a mutual fund - rather it is an unaudited composite of 46 Gamco accounts, which make up about 13% of the company's asset pool. According to filings, Gamco has another $8.8 billion of separate accounts; no performance data is given for them.

Gabelli's full business is a complex labyrinth of entities. The money management arm, including mutual funds, resides at Gamco. But Gamco is 80% controlled by a private company called GGCP, where Gabelli is chairman, CEO, and chief investment officer of value portfolios. He also controls an independent broker-dealer, Gabelli & Company. And he is chairman of Lynch Interactive, the multimedia company at the heart of the FCC case.

And somehow, despite all these responsibilities, Gabelli remains his firms' key stock picker, running all the Gabelli value funds and the Gamco separate accounts. As Morningstar analyst Kerry O'Boyle wonders, "How can Mario be in so many places at the same time?"

Gabelli says it's simple: "We are long-term investors. I couldn't do all this if we were commodities traders or hedge fund operators, in and out of the market every day." He says his funds typically hold a position for five to seven years.

"At Gamco, it was always about Mario- and Mario was always 100% right," says a former portfolio manager there. Gabelli brags he likes to hire Ph.D.s - in his words, "poor, hungry, and driven."

Many who have worked for Gabelli say the discipline they were taught lasts through their careers. Yet many of his most talented portfolio managers exit because "they never really get to manage money," says an analyst who recently departed the firm.

Tales of his temper also abound. One infamous story has Gabelli going ballistic when an office worker dropped a cup of coffee on the floor and Gabelli made him clean it up. Mario's response? "It's true! It was the second day in a row this guy had done it, and he'd refused to clean it up!"

In the spring of 1999, Gabelli published an article on shareholders' rights in Hermes, the Columbia Business School magazine.

"We take what we describe as a Gandhian approach to corporate governance," he wrote in the piece, which is available on his company's website. "This is a form of forceful yet passive resistance that includes such methods as getting the press involved."

He then invoked his "Magna Carta of Shareholder Rights," which states that his mutual fund company is in favor of "one share, one vote" and will vote against "supermajority voting." The article appeared just weeks after his own company had gone public - with supermajority voting shares that gave him dominant control. "We knew the structure wasn't optimal," he says today, "but we took the asset management subsidiary public because everyone wanted a pure play."

This structure came back to haunt him, of course, in the first of his $100 million settlements this year: It was Gabelli's stranglehold over his companies' shares that prompted his original backers, Frederick Mancheski and David Perlmutter, to sue.

But there are other troubling aspects of Gamco's initial IPO.

Goldman Sachs, his longtime advisor, pulled out as the underwriter. The reason, according to sources familiar with the negotiations at the time: Gabelli refused to relinquish what Goldman Sachs (Research)considered excessive pay. Merill Lynch (Research) and Salomon Smith Barney (Research) stepped up to the plate, but not before Gabelli agreed to shrink his personal take-home to 10% of Gamco's pretax profits (from 20%) in exchange for a deferred lump sum of $59 million, including interest.

Gabelli doesn't back down on the issue of his compensation.

When it's suggested to him that he may be the highest paid mutual fund manager alive, he responds, "That is just preposterous." He's not disavowing the publicly available $55 million figure for 2005. Instead he argues that Bill Miller of Legg Mason (Research) and Bill Gross of Pimco (Research) likely make comparable amounts; their companies just don't disclose it.

"I voluntarily make my pay public," he says. He also complains that he is "unfairly" compared to Wall Street CEOs like Merrill Lynch's Stanley O'Neal, who made $32 million last year. "I take all the risk," he says. "When I started my company back in 1977, I had a very simple pay formula--I would get 20% of the pretax profits every year. No pension. No options. That's it."

But that explanation leaves out a significant piece of his comp puzzle: His company's original offering in 1976 stated he was entitled to portfolio management and account executive fees - which can total millions. Other undisclosed pay comes from his other entities. That means that the $55 million figure isn't all of what he gets.

Gabelli says he's not entirely motivated by money. "I think when I was starting out that was a big driver," he says. "But when you get to be like me, that changes."

What really fuels him now, he says, is the ability to give that money away. His buddy Cooperman says that Gabelli "is the most generous person you'll ever know. He gives millions to charity."

The charities he gives to are diverse, but his passion, Gabelli says, is education. Of course, a lot of the giving comes with the Gabelli name attached. There's the Gabelli School of Business at Roger Williams University in Rhode Island and a Gabelli Hall at Boston College.

The day after we first talked about his compensation, Gabelli sent FORTUNE a yellow sheet of paper with retyped figures from Institutional Investor's Alpha, ranking the top 25 "Highest Paid Hedge Fund Managers" in 2003.

There's George Soros and his $750 million at the top of the list. Toward the bottom is Cerberus Capital's Stephen Feinberg, who made $75 million that year. And then "Mario J. Gabelli, Gabelli Asset Management, $41 million" added neatly at the bottom.

A few days later he brings up the new hot-off-the-press list from Alpha: "Jim Simons [who runs Renaissance Capital] made $1.5 billion last year and runs less money than I," he says. "Plus, his returns were lower!" (While it's true that Simons runs a mere $5 billion, he's hardly a laggard. From 1990 to 2004, his flagship Medallion fund returned 33% annually net of fees, far more than either Gamco's stock or any of Gabelli's mutual funds.)

Two days after the FCC settlement is announced, Gabelli is on the phone again. It's another friendly chat that proceeds without incident until the very end, when the subject of his 38-year-old son Marc comes up.

Marc has been instrumental in the family business for years, running the famously named "Gabelli Global Interactive Couch Potato Fund" back in the late '90s. He could end up running Gamco one day. But Gabelli doesn't see questions about his offspring as relevant, and suddenly, without warning, he blows his stack.

"That question is out of bounds! It has nothing to do with [Gamco]!" he barks. "I know where you're going with this ... you're going to ask about my other children too." He was wrong about that. But perhaps the stress of this year's difficulties was finally getting to him.

Clearly, Gabelli wants to be remembered as much more than just a guy who made a ton of money running mutual funds. He wants to join the pantheon of great investors he's sought to emulate all his life. The problem is Gabelli keeps getting in his own way. Maybe that's just Mario being Mario.

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REPORTER ASSOCIATE Telis Demos contributed to this article.