The Securities and Exchange Commission has prepared a civil suit charging socially prominent Smith Bagley with violations of the antifraud provisions of the federal securities laws, according to sources.

The sources say that attorneys for Bagley and the SEC are trying to work out a settlement, part of which calls for Bagley to reimburse former employes of his now-defunct company, the Washington Group Inc.

Bagley and his associate, James R. Gilley, are also under criminal investigation by a federal grand jury in Winston-Salem, N.C., where the Washington Group was located before it went into reorganization under the federal bankruptcy laws.

The grand jury meets later this month, at which time indictments could be handed down, according to sources.

Daniel Rezneck, of the firm of Arnold & Porter, one of Bagley's attorneys, said:

"It would not be appropriate to respond to this. Calculated and inaccurate leaks such as this are prejudicial to Mr. Bagley and incompatible with the fair administration of justice."

Gilley, in a telephone interview, said: "You're telling me things that the SEC has never said to me." And he added about the grand jury: "It's been meeting for nine months, and has been looking into a number of different things."

Bagley, 43 years old, is the grandson of R. J. Reynolds, founder of the North Carolina tobacco company.

He and his wife, Vicki, were strong backers of Jimmy Carter's bid for the presidency. After he was elected, Carter took a holiday at Musgrove Plantation, the Bagley vacation home on St. Simon Island, Ga. and during the first days of the administration, the Bagleys' large Georgetown house was often a social center.

The Washington Group Inc. was formed in 1972 when Bagley and Gilley merged their privately owned company into a large, conservatively run textile manufacturer. Their company, Convenient Systems, was made up of ice cream and convenience stores.

Bagley and Gilley gained control of publicly owned Washington Mills Co. of Winston-Salem by buying a third of its stock -- a controlling interest -- with a $2.5 million loan to Convenient Systems from United Virginia Bank.

The board of Washington Mills, allegedly under pressure from the new controlling shareholders, voted to merge Convenient Systems into Washington Mills. Under terms of the merger, Bagley and Gilley were able to turn in all their stock in Convenient Systems and Washington Mills and receive in exchange a two-thirds interest in a newly formed parent company, Washington Group Inc.

After the merger, a subsidiary of Washington Mills assumed the debts of Convenient Systems, incliding the $2.5 million that Gilley and Bagley borrowed to buy control of Washington Mills.

A suit filed in federal district court in Greensboro alleged the value of Convenient System's stock was overvalued and Washington Mills undervalued in the merger. Convenient Systems contributed assets of only $1.5 million to the merger, Washington Mills contributed $12.5 million. But the suit was settled out of court and the merger stood.

After the merger, Bagley became president and Gilley executive vice president of Washington Mills.

Washington Group became a darling of Wall Street as its stock rose from $13.50 a share in 1972 to $31.50 in 1974. And business associates affectionately referred to Gilley and Bagley as "the young lions."

Washington Group began acquiring smaller companies in North Carolina and elsewhere and, in 1973, it reported phenomenal earnings to stockholders of $3.52 per share.

But these glowing figures were later refuted by a new auditing firm that was hired by the trustee after the Washington Group filed for reorganization under Chapter 10 of the Federal Bankruptcy Act on Jan. 20, 1977.

The new auditor, Peat Marwick Mitchell & Co., reported that Washington Group, which claimed profits of $3 million in 1973, actually lost $1 million that year.

Moreover, Peat Marwick said that the company lost more than $13 million between 1973 and 1977 for an average loss of $7,123 a day.

Two private suits followed publications of the investigative report. One of them, filed by the bankruptcy trustee, asks $60 million, alleging stock manipulation and that $10 million of company assets were wasted through mismanagement.Among its allegations was that Bagley collected $70,000 a year in consulting fees for performing minimal services.

But the most damaging suit -- the substance of which figures both in the SEC and the grand jury probes -- accuses Bagley, Gilley and two banks of manipulating employe funds to inflate the value of Washington Group's stock.

The class-action suit was filed on behalf of the members of five profitsharing, pension and stock-purchase plans for the Washington Group. They are seeking to recover $500,000 they allege was lost because of mismanagement and manipulation of the benefit plans.

According to the suit, the employe plans had been managed by Wachovia Bank & Trust Co. of Winston-Salem. Most of the funds, contributed by 2,500 employes -- many of them aging mill workers -- had been invested in blue-chip securities.

The suit says that when the Wachovia bank refused demands by Bagley and Gilley to self some blue chips and invest the proceeds in Washington Group stock, the two executives switched the employe account on Sept. 30, 1974, to American Bank & Trust Co. of Reading, Pa.

American Bank sold about $500,000 of the blue-chip securities, investing most of the proceeds in Washington Group shares.

This had the effect of supporting the inflated price of Washington Group stock, and giving the impression of investor interest in the company, the suit alleges.

American Bank paid about $19 a share for the Washington Group stock, which eventually made up about one-third of the employe plan.

The employe plan remained with American Bank for a year, then was moved to Northwestern Bank of North Wilksboro, N.C., where Bagley is a director. Benjamin Craig, who had been president of American Bank when it took over the investment plan, became president of Northwestern.

The plan was terminated after it was transferred to Northwestern Bank. The employes were left with a retirement plan funded largely with stock in a bankrupt company.