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Ergen Knew LightSquared Debt Buys Wrong, Harbinger Says

Charles Ergen knew that his relationship to Dish Network Corp. and EchoStar Corp. made it improper for him to buy up LightSquared Inc.’s debt, according to new allegations in a lawsuit filed against him.

Philip Falcone’s Harbinger Capital Partners hedge fund made the claims today in an amended complaint in Manhattan bankruptcy court. Ergen first looked into whether Dish could acquire LightSquared debt in the fall of 2011, and an investigation then concluded that Dish was prohibited from buying LightSquared debt because it was a competitor, according to the complaint.

Ergen went on to form a “secret special purpose vehicle,” SP Special Opportunities LLC, to make the purchases, Harbinger said. That doesn’t get around a rule in LightSquared’s credit agreement barring competitors from buying its debt, because Ergen, along with Dish Treasurer Jason Kiser, were acting as agents for Dish when they got SP Special Opportunities to buy LightSquared’s debt, Harbinger said.

“Because of LightSquared’s bankruptcy, Dish, acting through its agent Mr. Ergen, apparently saw a chance to purchase LightSquared’s valuable assets at a price dictated by Dish, and devised and implemented a plan to achieve that goal,” Harbinger lawyers wrote. They said Ergen wanted to diversify his company by moving from its core, satellite television, to wireless.

LightSquared, backed by Harbinger, seeks to reorganize in bankruptcy by selling most of its spectrum assets in an auction led by a $2.22 billion bid from an entity owned by Ergen.

Competing Plans

A plan put forward by Harbinger is competing with three others, including one from a group of lenders who own most of the company’s debt. That group includes SPSO.

Ergen bought LightSquared debt in secret because he wanted to acquire a large enough holding to block the approval of any reorganization plan not approved by Dish, Harbinger said.

Separately, Ergen formed another entity that made the $2.22 billion bid. That means that if his bid is successful, Ergen will effectively be paying himself back for the debt that he bought at a discount, Harbinger said.

“In effect, Dish’s corporate assets would be used to purchase LightSquared’s spectrum assets to benefit Dish’s long-term business strategy, because the $2.22 billion proposal was made using the cash of Dish’s shareholders,” the lawsuit says.

The new complaint says Harbinger was unable to confirm rumors that Ergen and Dish were behind SPSO’s debt purchases, despite inquiries to parties including SPSO and Thomas Cullen, Dish’s executive vice president of corporate development.

Ergen’s Stance

Ergen seeks to have LightSquared’s lawsuit against him and his entities dismissed. Any purchase by L-Band, the Ergen entity that made the $2.22 billion offer, shouldn’t be delayed because of the lawsuit, L-Band has said.

“This is a situation of LightSquared’s own making, and should have no effect whatsoever on the sale timeline,” lawyers for Ergen wrote in court papers Nov. 22 objecting to the suit.

LightSquared, based in Reston, Virginia, filed for bankruptcy in May 2012, listing assets of $4.48 billion and debt of $2.29 billion. U.S. regulators blocked the service after makers and users of global positioning system devices, including the U.S. military and commercial airlines, said LightSquared’s signals would confound navigation gear.

The bankruptcy case is In re LightSquared Inc., 12-bk-12080, and Harbinger’s lawsuit is Harbinger Capital Partners LLC v. SP Special Opportunities LLC, 13-01390, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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