Falcone says he didn't know Ergen was buying LightSquared debt

NEW YORK Thu Jan 16, 2014 6:29pm EST

NEW YORK Jan 16 (Reuters) - Phil Falcone, the billionaire investor whose Harbinger Capital Partners owns wireless satellite company LightSquared, said Thursday he expended considerable energy in 2012 and 2013 trying to work out who was buying up LightSquared's debt.

The purchases, which later turned out to have been made by Dish Network Corp Chairman Charles Ergen, are at the center of a trial in the U.S. bankruptcy court in New York this week.

LightSquared and Falcone accuse Ergen of hiding his identity as the purchaser to overcome restrictions on competitors such as Dish from buying LightSquared debt. Ergen, who testified in the trial earlier this week, said he bought the debt on his own behalf and not for Dish.

In court on Thursday, Falcone described efforts by himself and associates to determine the identity of the buyer, saying it was a volatile and fluid process in which hunches changed frequently, sometimes in the span of a few minutes.

In a string of emails in 2012 and 2013 with bankers, investors and journalists, Falcone speculated the buyer could be anyone from Ergen to Mexican billionaire Carlos Slim to AT&T, Cablevision and others.

Lawyers for Dish and Ergen tried to show that Falcone knew all along that Ergen was behind the deals, but did not stop him because Ergen's interest could boost LightSquared's value.

They focused on other emails in which Falcone implied he knew Ergen was behind the deals, even once suggesting to other debtholders that they sell to Ergen.

Falcone described those emails as facetious.

"I was joking," he said.

In his testimony earlier this week, Ergen attributed his secrecy to a desire to keep the price of the debt low, rather than any effort to circumvent rules.

The trial pits Falcone and Ergen head to head in what could be a battle for control of LightSquared's valuable broadband wireless rights.

LightSquared filed for bankruptcy in 2012 after the Federal Communications Commission blocked its efforts to build a wireless network on fears it could interfere with GPS systems.

After Ergen bought up LightSquared's debt, Dish made a $2.2 billion bid for its wireless broadband rights last year. Dish pulled its bid last week.

Harbinger and LightSquared opposed the bid and are pushing a restructuring in which LightSquared would receive $2.75 billion in new loans and at least $1.25 billion in equity investment from Fortress Investment Group and others.

If Dish and Ergen are found liable at the trial, LightSquared could recoup damages to help pay creditors, and Ergen's claims against LightSquared as a creditor would be subordinated.

Falcone believes he can regain regulatory approval to salvage LightSquared's network, a point that Dish's lawyer grilled him about on Thursday, saying Falcone could not know whether the FCC plans to grant approval.

"Being as close to it as I am, I have a pretty good feeling what they're going to do," he said.

Dish's lawyers also questioned Falcone about a 2006 statement in which he compared LightSquared's wireless rights to "beach-front property."

The lawyer, Robert Giuffra, said beach-front property is only as valuable as what can be built on it.

"We don't know whether they'll let you build a small house or a big house," Giuffra said.

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