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LightSquared’s Ad Hoc Lenders Propose Reorganization Plan

Philip A. Falcone’s Harbinger Capital Partners LLC sued Charles Ergen and his Dish Network Corp., claiming Ergen is fraudulently trying to take control of Falcone’s bankrupt company, LightSquared Inc.

Ergen and other entities he controls “are engaged in a fraudulent scheme,” that has involved buying up the company’s debt in secret to gain an advantage in taking over its assets, according to the lawsuit, filed in Manhattan bankruptcy court today. The lawsuit also named EchoStar Corp., SP Special Opportunities LLC, and L-Band Acquisition LLC, which has offered to buy LightSquared’s assets out of bankruptcy for more than $2 billion.

Ergen and his entities are trying to “prevent LightSquared -- a potential competitor to Dish and EchoStar -- from emerging from bankruptcy under Harbinger’s control” and take its valuable wireless spectrum assets, the lawsuit said.

Ergen said he will open up his track record and let the courts and public decide whether his actions have been fraudulent or not.

“I personally have followed all of the rules,” Ergen said, answering a question about the lawsuit on a conference call today. “I think Dish has followed all of the rules.”

Ergen’s Sound Point and its related SP Special Opportunities fund, which was an investment vehicle created to buy LightSquared debt, amassed $1 billion in LightSquared debt while rebuffing inquiries from Harbinger about who was behind the “corporate facade,” the lawsuit said.

Suffered Damages

Harbinger already has suffered damages and will suffer billions of dollars more if Ergen can complete his scheme, lawyers for the fund wrote.

“Harbinger has filed this action to ensure that it and LightSquared can continue to work towards achieving a successful reorganization that will be in the best interests of all stakeholders and bring competitive broadband wireless services to consumers and businesses across the U.S.,” David Friedman, a lawyer for Harbinger, said in a statement.

LightSquared, based in Reston, Virginia, filed for bankruptcy in May 2012, listing assets of $4.48 billion and debt of $2.29 billion.

It sought bankruptcy protection to reorganize while seeking regulatory approval of its wireless spectrum. U.S. regulators blocked the service in 2012 after GPS-device makers and users -- including the U.S. military and commercial airlines -- said signals from LightSquared’s service would confound navigation gear.

Falcone, who founded Harbinger in 2001, is the subject of a potential $18 million settlement with the U.S. Securities and Exchange Commission which could bar him from serving as an officer or director of a public company, according to two people with knowledge of the matter who spoke to Bloomberg News July 19.

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

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