LightSquared Suit Accuses Ergen of Improperly Buying Debt

Dish Network Corp. Chairman Charles Ergen was accused in a lawsuit by Philip A. Falcone’s LightSquared Inc. of secretly buying debt in the bankrupt wireless company to lay the groundwork for a takeover.

The lawsuit was filed yesterday in U.S. Bankruptcy Court in Manhattan against Ergen, satellite-TV operator Dish, EchoStar Corp. and other entities affiliated with Ergen. According to the complaint, Ergen bought $1 billion in LightSquared debt through SP Special Opportunities LLC without revealing he was doing so, and violated a credit agreement.

“Under the credit agreement, LightSquared LP’s direct competitors, including Dish and EchoStar, and their subsidiaries, are ‘Disqualified Companies’” and can’t own a stake in the debt, Reston, Virginia-based LightSquared said in the filing.

U.S. Bankruptcy Judge Shelley Chapman last month dismissed similar claims brought by Falcone’s Harbinger Capital Partners LLC, saying that LightSquared was the more appropriate party to bring a complaint against Ergen.

Ergen, 60, has said the Harbinger suit was an attempt to derail his $2.22 billion cash offer to buy LightSquared, an owner of wireless spectrum. Ergen and SP said in a motion to dismiss the Harbinger case that they made no “false representations” about the purchases, so there was no fraud.

Block Claims

In the latest suit, LightSquared asked the court to disallow Ergen’s claims on the debt and to award punitive damages to be proved at trial.

Rachel Strickland, a lawyer for Ergen, declined to comment on the suit.

LightSquared filed for bankruptcy in May 2012, listing assets of $4.48 billion and debt of $2.29 billion. The company is trying to reorganize while seeking U.S. approval to use its wireless spectrum. Regulators blocked the service in 2012 after GPS-device makers and users, including the U.S. military and commercial airlines, said LightSquared’s signals would confound navigation gear.

A bankruptcy auction is planned, with Ergen’s offer serving the opening bid. Competing bids are due by Nov. 20 and the auction will tentatively be held Nov. 25, Dec. 6 at the latest.

Bob Toevs, a Dish spokesman, called LightSquared’s complaint “a desperate measure to avoid selling its assets to the highest bidder.”

‘Frivolous Litigation’

“While frivolous litigation is an unfortunate byproduct of this process, Dish remains focused on participating in the upcoming auction for LightSquared’s assets and is confident that these matters will be determined in its favor,” Toevs said in an e-mail.

Ergen also faces a complaint from shareholders of Englewood, Colorado-based Dish over his actions regarding LightSquared. Nevada state court judge Elizabeth Gonzalez in Las Vegas is scheduled to hear arguments Nov. 25 on whether he should be allowed to participate in Dish’s bid for the wireless spectrum owned by LightSquared.

LightSquared has contacted more than 90 potentially interested parties in an effort to find a bid to compete with Ergen’s, working at the direction of a special committee of its board with Moelis & Co. to engage potential offers, the company said Nov. 1 in court papers.

The company will have creditors vote on four competing plans of reorganization: one from the company; one from an ad-hoc group of lenders; one from Harbinger, and one from U.S. Bank NA and Mast Capital Management LLC.

The Chapter 11 case is In re LightSquared Inc., 12-bk-12080, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The lawsuit is LightSquared LP v. SP Special Opportunities LLC, 13-ap-01390, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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