LightSquared Creditors Seek OK To Sue Harbinger

Sep 18 2012 | 12:59pm ET

Creditors of Harbinger Capital Partners' wireless Internet venture have asked a judge for the right to sue the hedge fund on behalf of the bankrupt company it controls.

Lenders, including Mast Capital Partners and Fortress Investment Group, have asked a Manhattan federal bankruptcy judge to act on behalf of LightSquared, because "the debtors are completely conflicted, and will not sue their controlling insider," Harbinger. And the creditors want to go after a $263.8 million loan the hedge fund made to LightSquared last summer.

The creditors, who control $1.1 billion of a $1.7 billion loan, allege that the $263.8 million was "incorrectly styled" as a loan and was in fact an "equity infusion" made to an insolvent LightSquared. They complain that the loan was "preferential" to Harbinger, placing its claims ahead of their older claims.

LightSquared's creditors say they are facing a Sept. 28 deadline to file a lawsuit against Harbinger on behalf of LightSquared, of which Harbinger owns 96%. The hedge fund put the company into bankruptcy earlier this year and has been fighting debtors' efforts to subpoena its records. The bankruptcy filing ensured that Harbinger maintained control over LightSquared, which has run into regulatory trouble, after it failed to strike a new deal with lenders.

Creditors have said their investigation turned up a number of "red flags" surrounding the Harbinger loan.

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