By Joseph Checkler
Dish Network Corp. (DISH) Chairman Charlie Ergen is asking a judge to toss Harbinger Capital Partners' lawsuit against him, calling it a "last-ditch" bid by Harbinger founder Phil Falcone to keep control of LightSquared and divert attention from the wireless satellite company's plodding bankruptcy case.
In a Monday filing with U.S. Bankruptcy Court in Manhattan, lawyers for Mr. Ergen quoted from Securities and Exchange Commission press releases depicting their charges against Mr. Falcone, who agreed to a five-year ban from the securities industry as part of a settlement earlier this summer.
"It is especially ironic that Harbinger and Mr. Falcone have accused the Ergen Defendants of fraud and inequitable conduct," the lawyers said in the filing before quoting from the SEC release. Mr. Ergen said the suit should be dismissed because, among other things, there is no evidence of fraud at all. A spokesman for Harbinger declined to comment.
Mr. Ergen has bought up LightSquared debt through SP Special Opportunities, while a subsidiary of Dish has made a $2.2 billion bid for LightSquared's wireless spectrum assets that would pay off $1.7 billion in bank debt owned by Mr. Ergen's vehicle and a group of hedge funds. The hedge funds are seeking an auction with Mr. Ergen's offer as the leading bid, while LightSquared itself recently said it will explore a sale of itself in a separate process. The company has yet to negotiate with Mr. Ergen or Dish, a move the hedge funds and Mr. Ergen say proves that Mr. Falcone wants to maintain control of the company. LightSquared has said it still wants to remain a standalone company but has no choice but to explore a sale, a process that it said would involve naming an independent investment board.
In their filing, Mr. Ergen's lawyers challenged Harbinger's assertion that Mr. Ergen misrepresented himself when an entity he controls bought more than $1 billion in LightSquared debt. Harbinger said in its lawsuit that SP Special Opportunities is controlled by Dish, which would have been prohibited from buying the debt. Mr. Ergen, though, has repeatedly said that the entity is controlled by himself, and that he isn't subject to the same rules as Dish. A hearing on the dismissal request is set for early October. Dish also has asked Judge Shelley C. Chapman of U.S. Bankruptcy Court in Manhattan to throw out the case.
LightSquared filed for bankruptcy protection in May 2012 after the U.S. government said the company's network could interfere with global-positioning systems, causing the Federal Communications Commission to revoke LightSquared's license to use the wireless spectrum.
That wireless spectrum remains valuable, and Mr. Falcone, who has been committed to building a nationwide, high-speed network for years, thus far has held on to it. The FCC has done further testing of LightSquared's network and is considering whether to approve the company's application to share some of the government's spectrum and modify its licenses. Such an approval would allow LightSquared to deploy some of its network quickly while it waits for approval on other parts of it. The time-consuming approval process, though, has forced LightSquared to explore a sale.
Mr. Falcone's legal woes have further complicated his efforts to stay in control of the company. The SEC last year charged him with, among other things, taking a $113 million loan from a Harbinger fund to pay his personal taxes as other investors were prevented from withdrawing money.
After his initial settlement with the SEC was deemed too lenient, the two sides earlier this month reached a new deal that called for Mr. Falcone to pay about $18 million in financial penalties and agree to a five-year ban from the securities industry. Mr. Falcone also admitted wrongdoing, a first-time occurrence in SEC settlements not related to people who previously had pleaded guilty in a criminal proceeding or been criminally convicted.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)
Write to Joseph Checkler at firstname.lastname@example.org