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Falcone Takes Stand in LightSquared Case

Stocks in this article: DISH CVC S T

NEW YORK (Dish) -- Philip Falcone detailed a roughly year-long effort to discover who was assembling a blocking position in secured debt of LightSquared during Thursday testimony in a New York bankruptcy court.

LightSquared and Falcone's Harbinger Capital Partners LLC charge that Charlie Ergen's stealth acquisition of LightSquared's secured loans violated a credit agreement and impaired its reorganization. The plaintiffs want to subordinate close to $1 billion in claims that the Dish Network (DISH - Get Report) chairman holds, among other possible relief.

Lawyers for Ergen and Dish contend that LightSquared's restructuring problems stem from management's inability to reach a deal with the Federal Communications Commission and from unattractive terms that Falcone has offered to creditors.

In May 2012, just before LightSquared sought bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of New York, an entity called SP Special Opportunities LLC purchased nearly $250 million worth of secured debt from Carl Icahn. The purchase caught notice, and speculation arose about who acquired the position.

"We were trying to turn over every rock that we could," Falcone said, adding that he reached out to bankers, reporters and telecom executives to determine who was purchasing the debt.

Falcone thought Dish could be the purchaser, but testified that he believed a number of parties could have been behind the trades.

Ergen-controlled Echostar Corp. was on a list of competitors that LightSqaured's creditor agreement barred from purchasing the secured debt. The company later added Dish to the list. The debtor has argued that Ergen's purchases violate the agreement.

Falcone at one point thought that Cablevision Systems (CVC - Get Report) could be involved, because the Dolan family is close to Steve Ketchum of Sound Point Capital Management, who brokered the trades.

Other candidates included Carlos Slim Helu, Sprint (S), AT&T (T) or a large private equity firm.

Falcone tried to smoke out Dish corporate development executive Tom Cullen with an e-mail congratulating him on the debt purchase. Falcone also reached out to bankers with ties to AT&T, such as Greenhill & Co.'s Gil Ha and Omar Jaffrey of Tap Advisors and Melody Capital Partners.

E-mails show that Falcone told a Reuters reporter that Ergen had purchased debt from Icahn. Falcone testified that he did not actually know at the time that Ergen was the buyer. He was trying to obtain information from the reporter, he said, rather than plant a story.

"I was digging for information," Falcone testified. "An article doesn't do me much good."

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