Billionaire Charles Ergen said his purchases of bankrupt LightSquared Inc.’s debt were smart, not illegal, and that a lawsuit challenging his $2.22 billion bid for the company should be thrown out.
In the suit in Manhattan federal court, Philip Falcone’s Harbinger Capital Partners said Ergen shouldn’t have been able to buy the debt because his two companies, Dish Network Corp. and EchoStar Corp., are direct competitors of LightSquared, a satellite broadband provider. Harbinger invested about $3 billion in LightSquared.
Ergen used a specially created entity to hide the purchases, buying a big enough stake to block any bankruptcy plan Dish didn’t approve of, Harbinger said. His purchases also meant that if his $2.22 billion bid for LightSquared succeeds, he will effectively be paying himself back for debt he bought at a discount. Ergen today said that he did nothing improper.
“It is smart, not illegal, when investing in the debt of a distressed or bankrupt company, to be cognizant of bankruptcy voting thresholds and strategic considerations,” he said in a court filing. “That’s how investors make money and protect their investments.”
Harbinger and LightSquared have both sued Ergen and his affiliates over the debt purchases as part of LightSquared’s bankruptcy. They claim Ergen first looked into whether Dish could acquire LightSquared debt in 2011 and concluded that it was barred from doing so because it was a competitor.
Ergen, 60, formed a “secret special purpose vehicle,” SP Special Opportunities LLC, to make the purchases, according to court papers. That shouldn’t get Ergen around a rule in LightSquared’s credit agreement barring competitors from buying its debt, because he, along with Dish Treasurer Jason Kiser, were acting as agents for Dish when they got SP to buy LightSquared’s debt, Harbinger has said.
“There is no legal prohibition against anyone (including a natural person) creating a trading vehicle, and there is no disclosure obligation requiring an investor to disclose its trading activity,” according to Ergen’s filing today.
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).