Falcone Sues Dish, Ergen For $1.5B Over LightSquared

NEW YORK (The Deal) -- As LightSquared Inc. begins an accelerated summer schedule to confirm its new reorganization plan, backer Philip Falcone is suing the company's largest creditor for more than $1.5 billion.

Falcone's Harbinger Capital Partners alleged that Charlie Ergen, Dish Network (DISH) and other parties engaged in racketeering, fraud and other activities. The complaint was filed Tuesday in the U.S. District Court for the District of Colorado. Harbinger has requested a jury trial.

Falcone and Ergen have butted heads frequently during LightSquared's bankruptcy.

Ergen is the company's largest creditor, with more than $1 billion in secured claims, including interest. Terms of the credit agreement barred Dish from purchasing the secured loans, but Ergen acquired the debt through a personal vehicle called SP Special Opportunities LLC.

Harbinger alleges that Ergen purchased debt as part of a scheme to buy the debtor's wireless spectrum at a discount and to undermine the reorganization.

Falcone's hedge fund alleges that Ergen, Dish and other parties "abused the bankruptcy proceedings, withheld crucial evidence, and engaged in a 'troubling pattern of noncredible testimony,'" in pleadings filed by its New York counsel Kasowitz, Benson, Torres & Friedman LLP and Denver firm Reilly Pozner LLP.

"Defendants wrongfully and deceptively created chaos in the bankruptcy proceedings so that Harbinger would lose control of the LightSquared board to which it was contractually entitled," the complaint alleges.

In addition, the plaintiff claims that Ergen and his cohorts "lied under oath during critical trial testimony" in a proceedings held by Judge Shelley Chapman in the U.S. Bankruptcy Court for the Southern District of New York.

A Dish spokesman said the company is reviewing the complaint and declined to comment.

Cerberus Capital Management LP, Fortress Investment Group LLC and JPMorgan Chase & Co. are leading a $1.75 billion investment that, together with a $1.3 billion debt issuance, will fund LightSquared's reorganization.

The firms will hold the majority of the equity. Harbinger, which now holds more than 82% of the equity, will have a 12.5% stake if LightSquared can confirm the plan.

The debtor has until Monday to file a reorganization plan.

Chapman will hold a hearing on whether LightSquared has made adequate disclosure on July 21.

LightSquared will solicit ballots on the plan starting July 23, and creditors have until Aug. 1 to vote.

Objections to the plan are due on Aug. 12. The parties have until Aug. 15 to complete discovery before the trial on the reorganization plan and subordination of Ergen's claims, which commences on Aug. 25.

The trial will spill over into early September if necessary. LightSquared and its new backers aim for the plan to become effective by Sept. 30.

LightSquared still needs approval from the Federal Communications Commission before it can provide wireless broadband wholesale services. After the FCC pulled its support for LightSquared in 2012 -- finding that the company's planned service would interfere with GPS signals -- the Harbinger-backed company sought bankruptcy protection.

In a July 1 letter to the FCC, the government's National Telecommunications and Information Administration suggested that problems with GPS transmissions have not been resolved. The Department of Transportation also expressed concerns.

Even if LightSquared can resolve the infighting among its creditors, the company and its new backers will have to wrangle with politicians and regulators in Washington.

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