It's a battle of the billionaires as Phil Falcone, the hedge-fund boss who owns LightSquared, has dished out a US$4 billion lawsuit to Charlie Ergen's Dish Network Corp., alleging that Ergen is trying to force Falcone out of his controlling stake of the bankrupt 4G operator.
Falcone's Harbringer Capital Partners filed the lawsuit on Tuesday afternoon in the U.S. Bankruptcy Court of Manhattan. It claims Ergen and his affiliates created an investment management firm, Sound Point Capital, specifically to nab the largest holding of LightSquared loans when a credit agreement prevented other competitors from doing the same.
The firm, the suit alleges, concealed ties to Ergen in an attempt to strip Falcone of the company, amassing more than $1 billion in LightSquared loans over the course of a year. LightSquared claims the fraudulent process was enough to prevent it from negotiating a consensual bankruptcy plan. The suit reads:
"These Defendants, aided and abetted by Defendants SP Capital and Ketchum, are engaged in a fraudulent scheme to: (1) deprive Harbinger of its investment in and control of LightSquared and its valuable wireless spectrum; (2) prevent LightSquared -- a potential competitor to Dish and EchoStar -- from emerging from bankruptcy under Harbinger's control; and (3) misappropriate the valuable spectrum assets at a discount to their true value."
Falcone is looking for $2 billion in compensation and $2 billion in punitive damages, as well as the reversal of LightSquared loans purchased by Ergen and crew. (See LightSquared: The Company That Won't Die.)
Interestingly, Ergen said on Tuesday during Dish's second-quarter earnings call that LightSquared was an attractive target for a takeover, primarily for its valuable spectrum holdings. The satellite TV operator has infamously spent the better part of this year fighting to acquire both Sprint Corp. and Clearwire LLC. Having lost both deals, speculation has been mounting about what its next target would be with LightSquared, T-Mobile and DirecTV topping the list. (See Dish Cedes To Sprint's Clearwire Bid and Dish Throws in the Towel on Sprint Buy.)
"I personally followed all of the rules," Ergen said on the call, according to The Wall Street Journal. "I will certainly personally put my track record and what I've done, and I will put the light on that. I'll put the light on Dish and we will put the light on Harbinger and Mr. Falcone, and we'll let the courts and public opinion decide who is fraudulent and who's not."
— Sarah Reedy, Senior Editor, Light Reading