"I'm sorry, there's not room in this round" usually does the trick. You don't tell a friend of a friend that you don't trust him. If he is upset that he's not going to be part of the round, he will ask your friend, and your friend will tell him the truth.
That's the best way to handle these kind of sensitive situations.
Thanks for the advice, I think that's what I'm going to end up doing. Your point about him going to the friend is apt: it would just be too confrontational for me to tell him, but I don't mind if he knows the reason.
That's the best way to handle these kind of sensitive situations.