(Adds details from lawsuit, background from paragraph four)
By Tom Hals
July 9 Harbinger Capital Partners has sued Dish Network Corp and its chairman, Charles Ergen, for at least $1.5 billion, accusing them of trying to strip the hedge fund of its control of bankrupt wireless company LightSquared.
The lawsuit, filed in a Colorado federal court on Tuesday, said Ergen had engaged in fraud and violated a federal anti-racketeering law.
LightSquared LP filed for bankruptcy protection in 2012. Its Chapter 11 case has been marred by a long-running battle between Ergen, who became LightSquared's largest creditor during the bankruptcy, and Phil Falcone's Harbinger, which spent billions of dollars building the company's wireless network.
Dish and Ergen engaged in "an illegal scheme involving mail and wire fraud, bankruptcy fraud, tortious interference, and abuse of process," said the complaint. "Defendants wrongfully and deceptively created chaos in the bankruptcy proceedings so that Harbinger would lose control of the LightSquared board."
Harbinger had hoped for a bankruptcy restructuring that would allow it to retain control of LightSquared. But Ergen slowly accumulated about $1 billion of LightSquared's senior loan debt, potentially giving him veto power over any plan.
Last month, LightSquared reached a mediated deal to end its bankruptcy, giving JPMorgan Chase & Co, Cerberus Capital Management LP and Fortress Investment Group LLC control of the company. Harbinger would retain a 12.5 percent stake in LightSquared, and Ergen would be repaid.
Ergen's lawyer last week told the U.S. Bankruptcy Court in Manhattan that Ergen was prepared to fight that plan.
Ergen's lawyer and a Dish spokeswoman did not immediately return a call seeking comment on Wednesday.
The lawsuit was filed in Colorado federal court because it had jurisdiction over claims brought under the federal Racketeering Influenced and Corrupt Organization Act, according to the complaint. Dish is based in Englewood, Colorado.
Also named as defendants in Tuesday's complaint were Ergen's investment funds, Stephen Ketchum and Ketchum's Sound Point Capital Management. The lawsuit says they helped Ergen acquire LightSquared debt.
The case is Harbinger Capital Partners LLC et al v Charles W. Ergen et al, U.S. District Court, District of Colorado, No. 14-1907. (Reporting by Tom Hals in Wilmington, Delaware; Editing by Meredith Mazzilli and Lisa Von Ahn)