Scottish prosecutors are considering launching a criminal case in connection with the collapse of $600 million hedge fund Heather Capital, following a police investigation into alleged embezzlement.

The Crown Office and Procurator Fiscal Service, Scotland's prosecution service, said in an email to The Wall Street Journal that a case had been referred to it and it was considering what action to take regarding a 46-year-old man.

A person familiar with the matter said the subject of the investigation is Gregory King, the 46-year-old Scottish financier who ran Heather via a complex web of offshore companies.

Heather Capital, which made loans to property developers, collapsed during the credit crisis, losing its investors every cent. It made most of its loans through a U.K. company called Mathon Ltd., which was controlled by Mr. King.

Mr. King, who now lives in a villa in a gated country club in the south of Spain, couldn't be reached for comment Thursday. Mr. King declined to comment to a reporter who visited the country club earlier this month.

The Wall Street Journal reported last week that Mathon lent money to unusual borrowers, often secured against poor-quality properties. These included rundown churches and derelict pubs on the outskirts of Glasgow and a former garden center in a Scottish port town.

While ostensibly for property development, the loans often weren't paid back, leaving the borrowers with the cash, according to U.K. company filings.

"The Procurator Fiscal has received a report concerning a 46-year-old man in connection with incidents said to have occurred between 1 January 2008 and 20 January 2009," said a Crown Office spokesman. "The report remains under the consideration of the Procurator Fiscal."

At his country club, Mr. King said that he didn't want to speak to a reporter. Previous attempts to reach him, through letters delivered to the house and to his parents as well as through a family friend, were unsuccessful.

Mathon's portfolio included loans to companies that listed boxing promoter Mario Rea, who was barred over unexplained money transfers in 2011 from serving as a company director for seven years, as a director or secretary. Mr. Rea's spokesman declined to comment.

The company also lent money to firms part-owned by businessman Lawrence Gillick, who had previously been declared bankrupt, and to companies controlled by businessmen Allan Stewart and Stephen McKenna. Mr. Stewart was banned from serving as a company director for seven years in the 1990s.

The Journal hasn't been able to reach Messrs. Gillick and McKenna for comment; Mr. Stewart hasn't responded to a request for comment. His spokesman told a Scottish newspaper in 2010 that Mr. Stewart had a well-respected business record.

Mr. King personally took nearly $52 million in fees from the hedge fund between 2005 and 2008, according to the fund's financial filings.

"As a result of a police investigation into alleged embezzlement concerning Mathon Finance Ltd., a 46-year-old is subject of a report to the Procurator Fiscal," said a spokesman for Police Scotland.

Jon Sindreu contributed to this article.

Write to Laurence Fletcher at laurence.fletcher@wsj.com

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