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debt, in spite of loan covenants barring competitors from its capital structure, and Dish’s $2.2 billion bid—later withdrawn—for LightSquared’s assets.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

Q&A: George Schultze On His Fund's Unique Approach to Distressed Investing

Apr 16 2015 | 1:01am ET

George Schultze is a managing member of Schultze Asset Management, a long/short...

Lifestyle

Puerto Rico Woos The Rich But So Far Gains Little

Apr 17 2015 | 2:45am ET

Hedge fund manager Rob Rill grins. He has just had word that U.S. financial regulators...

Guest Contributor

Minnesota Supreme Court Rejects The Ponzi Scheme Presumption: Lenders Claw Back Some Of Their Own Rights

Apr 17 2015 | 9:23am ET

A recent court ruling in Minnesota has put an end to the Ponzi Scheme Presumption...

 

Editor's Note