NEW YORK Bankrupt wireless communications firm LightSquared Inc has filed a lawsuit accusing Dish Network Corp (DISH.O) and its chairman, Charles Ergen, of improperly trying to take control of LightSquared's broadband spectrum.
The lawsuit, filed in the U.S. bankruptcy court in New York late on Friday, is an effort to revive an earlier case by LightSquared's controlling stakeholder, Phil Falcone's Harbinger Capital Partners, that was thrown out last month.
LightSquared alleges that Dish, Ergen, and other Ergen-controlled entities made improper trades and violated a key credit agreement in order to become LightSquared's largest creditor, with the intention of taking control of LightSquared's spectrum, the airwaves used for wireless communications.
A spokesman for Dish called the allegations a "desperate measure" by LightSquared to avoid selling its assets.
The lawsuit is the latest front in an ongoing battle between Ergen and Falcone for control of LightSquared.
LightSquared filed for Chapter 11 in May 2012 after the Federal Communications Commission tentatively blocked it from building a wireless network amid concerns that the signal from the network could interfere with the global positioning satellite industry.
In its lawsuit on Friday, LightSquared alleged that an Ergen entity surreptitiously amassed a controlling block of LightSquared loans. It said this entity delayed the closing of a number of large loan trades to hide the identity of the buyer, namely Ergen, and derail negotiations with creditors as LightSquared neared the end of a deadline to file a restructuring plan.
The cumulative effect was to provide Dish with substantial leverage over an auction of LightSquared's spectrum, which is set to be held in December, the lawsuit said.
The lawsuit seeks to disallow Ergen's claims in the bankruptcy process that result from the debt purchases and subordinate those claims behind other creditors. It is also seeking punitive and compensatory damages.
"This elaborate distraction seems designed to shift attention from years of LightSquared mismanagement leading to bankruptcy," Dish spokesman Bob Toevs wrote in an email.
LightSquared's complaint on Friday was styled as a "complaint-in-intervention," meaning LightSquared is essentially trying to step in as a plaintiff in an earlier lawsuit.
The lawsuit was originally filed in August by Harbinger, which owns about 80 percent of LightSquared. U.S. Bankruptcy Judge Shelley Chapman, who is overseeing LightSquared's restructuring, last month granted Ergen's request to dismiss the case, but said other LightSquared entities were not barred from bringing the allegations.
Harbinger and LightSquared's lenders have proposed competing plans for how to restructure LightSquared. Lenders are pushing for an auction while Harbinger has contended that it can pay back creditors and still retain ownership. Creditors are currently voting on the proposals, and the auction is ultimately expected to take place.
In separate litigation, LightSquared has sued members of the GPS industry, alleging they raised no concerns about interference until after LightSquared had pumped millions of dollars into its network. The defendants in that case, which include Deere & Co, on Friday sought to have the case moved to federal court from bankruptcy court.
The case is LightSquared Inc et al. v. Ergen et al., U.S. Bankruptcy Court for the Southern District of New York, No. 13-1390.
The bankruptcy is: In re LightSquared Inc., in the same court, No. 12-12080.
(Reporting by Billy Cheung and Amanda Becker; Editing by David Brunnstrom)