Harbinger Sues Dish Chief For Fraud Over LightSquared Debt

Aug 7 2013 | 10:47am ET

Harbinger Capital Management has accused Dish Network co-founder Charlie Ergen of fraud in the latest skirmish over the hedge fund's foundering wireless Internet venture.

In a lawsuit filed in federal bankruptcy court in Manhattan, Harbinger alleges that Ergen has been secretly acquiring LightSquared debt for more than a year, in contravention of the company's credit agreement, which bars competitors from buying the debt. The lawsuit comes just weeks after LightSquared's exclusive window to hammer out a bankruptcy exit plan closed, and its creditors filed a competing plan, whose centerpiece is a $2.2 billion offer from Ergen for its assets, including its share of the electromagnetic spectrum.

Harbinger called that offer a "lowball, bad-faith bid," and alleged that he had sabotaged LightSquared's efforts to reach a deal with its creditors with his own debt purchases. According to Harbinger, Ergen has bought up some $1 billion in LightSquared debt through hedge fund Sound Point Capital; Ergen is the only investor in Sound Point's SP Special Opportunities Holdings and is now the single largest holder of LightSquared debt.

Harbinger has already sought to cut Sound Point out of its reorganization plan, saying in a filing last month that it is "not a legitimate creditor."

In its latest lawsuit, Harbinger is seeking more than $2 billion in damages. The complaint names Ergen, Sound Point, Sound Point founder Stephen Ketchum, SP Special Opportunities, Dish, EchoStar and L-Band Acquisition.

"The Harbinger complaint is without merit and is full of mischaracterizations and factual inaccuracies," Willkie Farr & Gallagher, the law firm representing SP Special Opportunities, said. "All trades relating to LightSquared's bank debt were permitted under the terms of LightSquared's credit agreement."

LightSquared filed for bankruptcy last year after federal regulators rejected its bid to move forward with its planned 4G network due to interference concerns with global positioning systems. The company is seeking to swap its current spectrum in an effort to solve that issue.

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