NEW YORK Broadband company LightSquared on Monday urged a judge to find that its largest creditor, Dish Network Corp Chairman Charles Ergen, acquired his debt holding improperly.
U.S. Bankruptcy Judge Shelley Chapman was hearing closing arguments in a trial over whether Ergen concealed his identity to acquire his controlling stake of LightSquared's debt. The outcome of the trial is likely to determine the fate of LightSquared's wireless rights after it emerges from Chapter 11.
"There's no question that Ergen was a competitor" of LightSquared, and should not have been able to buy its debt, a lawyer for LightSquared, Andrew LeBlanc, told Chapman.
LightSquared filed for bankruptcy in 2012 after the Federal Communications Commission revoked its license to build a planned wireless network on concerns it could interfere with GPS systems.
Ergen bought up about $1 billion worth of LightSquared's debt, despite an agreement between LightSquared and its lenders that barred competitors from acquiring the company's debt. Ergen later said he bought the debt in his personal capacity, not on behalf of Dish.
LightSquared and its main shareholder, Phil Falcone's Harbinger Capital Partners, sued Dish and Ergen, saying Ergen had bought the debt on Dish's behalf and to circumvent the credit agreement and stack the deck for a Dish takeover.
A Dish unit last year bid $2.2 billion for LightSquared, but dropped the offer in January.
LightSquared has proposed to exit bankruptcy under a plan that would subordinate Ergen's claims while paying other secured creditors in full and allow Harbinger to retain an ownership stake. A bankruptcy confirmation hearing is to start on Wednesday.
But LightSquared built the plan on the idea that Ergen acquired his debt illegally, meaning Chapman likely cannot approve the plan unless she first sides with LightSquared in its lawsuit against Ergen.
The hearing to confirm the plan is likely to run through next week. Chapman may not rule in the trial until after the confirmation hearings are over.
Delivering closing arguments for Ergen on Monday, lawyer Rachel Strickland said LightSquared's problems - namely its lack of FCC approval and inability to raise capital - were not caused by Ergen. In fact, Strickland said, "Phil Falcone welcomed bankruptcy."
"He saw it as a way to delay, to bog things down and buy time because he was waiting for an FCC resolution that would allow him to retain his equity," Strickland said.
A lawyer for Harbinger said Ergen had a long-term interest in acquiring LightSquared and was thinking of Dish when he made his purchases. Ergen even concealed them from his wife, a Dish board member, the lawyer, David Friedman, said.
Friedman urged common sense, saying Ergen should have known any ban on debt ownership by Dish would extend to Ergen. To assume otherwise, he said, would be "insane" and would "defy commercial sense."
Chapman was skeptical, asking whether Harbinger may have initially welcomed Ergen's play in hopes it would attract other strategic buyers. She asked why LightSquared and Harbinger did not raise concerns about Dish earlier in the case.
"No one called 911," she said. "No one said, ‘Help, there's a competitor in my capital structure.'"
The case is In Re LightSquared Inc, U.S. Bankruptcy Court, Southern District of New York, No. 12-12080.
(Reporting by Nick Brown; Editing by Leslie Adler)