LightSquared Says Dish’s Ergen Sought Its Destruction

LightSquared Inc. accused Charles Ergen of trying to destroy the wireless-broadband company when he bought its debt, saying evidence showed that he intended to benefit his Dish Network Corp. (DISH)

Lawyers for Philip Falcone’s LightSquared made the claim today in U.S. Bankruptcy Court in Manhattan, during closing arguments in a trial over Ergen’s acquisition of $1 billion in LightSquared debt. LightSquared says the purchases were improper and seeks to disallow Ergen’s bankruptcy claim.

“As a competitor, his interest was always in destroying the value of LightSquared,” Andrew LeBlanc, a lawyer for LightSquared with Milbank, Tweed, Hadley & McCloy LLP, told U.S. Bankruptcy Judge Shelley Chapman.

LightSquared claims that Ergen sought to manipulate its bankruptcy case and keep away rival bidders by building up a “blocking position” in the debt. As part of Ergen’s scheme, an affiliate made a $2.22 billion bid for LightSquared and then withdrew it to pressure the company into getting a better deal for the wireless spectrum, LightSquared alleged.

Ergen’s SP Special Opportunities LLC fund began buying the debt following a March 2012 revelation that Dish had interference issues with its spectrum and could benefit from obtaining LightSquared’s, LeBlanc said today. The purchases accelerated after a Dec. 17 finding that clarified the interference problem, he said.

Debt Purchases

LightSquared alleges Ergen’s debt purchases were improper because he concealed that he was acting on behalf of Englewood, Colorado-based Dish, and competitors were prohibited from owning LightSquared’s debt.

Rachel Strickland, a lawyer for SPSO, said today that LightSquared’s situation -- out of cash and without regulatory approval to use its spectrum -- isn’t Ergen’s fault.

“There’s no Machiavellian corporate raider that brought LightSquared to its knees,” Strickland told Chapman. She challenged LightSquared to prove that Ergen had caused any actual harm to the company.

Chapman, who has yet to indicate when she will rule on the case, questioned why LightSquared didn’t challenge Ergen’s investment when the company first found out about it.

“We went for over a year without anybody calling 911,” Chapman said. “Nobody said, ‘Help, there’s a competitor in my capital structure!’”

Illicit Ploy

Ergen has said that he acted only for himself in buying the debt and made no “false representations.” He characterized the lawsuit as an illicit ploy to help Falcone keep control of LightSquared in bankruptcy and said the case has cost tens of millions of dollars, eating into creditors’ recoveries.

As evidence that Ergen was acting for Dish, LeBlanc cited Ergen’s use of Dish Treasurer Jason Kiser to make the purchases, along with a firm that had bought debt for Dish before -- Steven Ketchum’s SoundPoint Capital Management LLC. Ergen also sought legal advice from Dish’s outside counsel, Sullivan & Cromwell LLP, LeBlanc said.

Under a Chapter 11 exit plan set to come up for court approval on March 19, LightSquared proposed to place Ergen’s $1.06 billion in debt last in line to be repaid behind other creditors, including Falcone.

Ergen Objection

Ergen objected that the plan treats him as guilty of wrongdoing, though he hasn’t been proven so at trial. LightSquared argued that he still could be treated differently from other creditors because he was a competitor and shouldn’t have owned the debt at all.

The trial, which ran over seven days in court, included testimony from Ergen, 61, and Falcone, 51. Kiser testified that he didn’t consider whether he was acting for the company or the chairman when he first looked into buying the debt in 2011.

The plan values LightSquared at $7.7 billion and doesn’t hinge on regulatory approval for using the airwaves that are its main asset.

LightSquared, based in Reston, Virginia, sought court protection after the Federal Communications Commission blocked the company’s wireless service, saying it might interfere with civilian and military global-positioning-system navigation equipment. The company listed assets of $4.48 billion and debt of $2.29 billion.

The case is In re LightSquared Inc., 12-bk-12080, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Tiffany Kary in New York at tkary@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net Stephen Farr, Charles Carter

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