Harbinger Seeks $1.5 Billion From Ergen In Racketeering Suit

Jul 10 2014 | 6:16am ET

Harbinger Capital Partners has accused Dish Network founder Charles Ergen of acting like a mobster in attempting to sink the restructuring of its bankrupt wireless internet venture.

The hedge fund this week filed a racketeering lawsuit against Ergen and Dish, accusing them of using “improper tactics” to force LightSquared into liquidation. The suit was filed under the federal RICO statute, which allows Harbinger to seek triple damages—in this case, at least $1.5 billion.

“Ergen and his fellow RICO enterprise members pursued their abusive scheme through wire, mail and bankruptcy fraud, abuse of process, tortious interference with contract, and obstruction of justice,” the lawsuit alleges. Harbinger also accuses Englewood, Colo.-based Dish of breaking its home-state organized crime laws.

“Abusing the judicial process to corrupt the legal rights of others is part of Ergen’s modus vivendi,” Harbinger added tartly.

At issue is Ergen’s purchase of nearly $1 billion in LightSquared debt, in spite of loan covenants barring competitors from its capital structure, and Dish’s $2.2 billion bid—later withdrawn—for LightSquared’s assets. But, according to Harbinger, that lowball bid for LightSquared’s share of the electromagnetic spectrum was only part of a plan to drive the price even lower.

“Ergen never had any intention to purchase LightSquare’s assets at even the highly distressed price,” Harbinger alleged. “Instead, defendants meant only to displace Harbinger and thereby force a distressed liquidation in which he could obtain the assets at an even greater discount.”

To that end, Ergen “wrongfully and deceptively created chaos” during LightSquared’s bankruptcy position to push Harbinger out, the hedge fund alleges. To that extent, he’s succeeded, as Harbinger chief Philip Falcone and Harbinger’s four other representatives on LightSquared’s board have resigned as part of a new bankruptcy exit plan that will leave the hedge fund with just 12.5% of the company’s equity.

Of course, things haven’t all worked out according to Ergen’s plans, either. While a federal bankruptcy judge rejected LightSquared’s first bankruptcy plan as unfair to Ergen, its largest creditor, she also found that he had improperly purchased the debt and should see some of it subordinated. Ergen later antagonized another bankruptcy judge appointed to mediate the dispute; U.S. Bankruptcy Judge Robert Drain accused Ergen of not negotiating “in good faith” and of wasting his time, and recommended a new $3 billion restructuring backed by Cerberus Capital Management and Fortress Investment Group, and supported by all creditors save Ergen.


In Depth

U.S. Treasury Moves on Reinsurance Loophole

Apr 24 2015 | 5:11pm ET

The U.S. Treasury Department has released proposed rules aimed at limiting the ability...

Lifestyle

Artivest Announces Funding Round Led by KKR & Co.

May 4 2015 | 9:56am ET

Artivest, a startup that provides individual investors with access to private equity...

Guest Contributor

Starting a ‘40 Act Fund Family? Don’t Forget Your Board

Apr 30 2015 | 7:18am ET

The convergence of the hedge fund and mutual fund worlds continues unabated, as...

 

Editor's Note