January 16, 2014 / 12:30 AM / 4 years ago

UPDATE 1-Fund manager says doesn't recall why Ergen bought LightSquared debt

By Nick Brown

NEW YORK, Jan 15 (Reuters) - A hedge fund manager who handled debt purchases at the center of a trial over the bankruptcy of LightSquared said on Wednesday he did not recall whether Dish Network Corp Chairman Charles Ergen was buying the debt to influence the bankruptcy.

Stephen Ketchum, the head of Sound Point Capital, also testified that he could not recall how badly Ergen wanted the debt of the wireless communications company, apparently contradicting an earlier deposition and drawing a reminder from the judge that he was under oath.

Ergen’s motivation for buying LightSquared’s debt is central to the trial, which is taking place in the U.S. bankruptcy court in Manhattan. LightSquared and its owner, Harbinger Capital Partners, accuse Ergen of improperly buying the debt as a way for Dish to take control of LightSquared’s wireless broadband rights. Ergen has said he was buying the debt for his own purposes.

LightSquared has alleged that Ergen hid his identity as the purchaser to get around a provision in LightSquared’s debt agreements banning competitors such as Dish from acquiring its debt.

In court on Wednesday, the fourth day of the trial, Ketchum said several times that he did not recall the answers to questions.

At one point, Ketchum said he did not know whether Ergen had a strong appetite for LightSquared debt, prompting LightSquared lawyer Michael Hirschfeld to excerpt a portion of his deposition in which he had said Ergen had an “appetite for more.”

When he said that, he did not recall whether Ergen was seeking a blocking position - or enough debt to block a restructuring proposal he opposed - Hirschfeld referred to emails in which Ketchum told an Ergen associate what it would take to acquire such a blocking position.

Ketchum said the emails were just presentations of the “calculation” it would take to attain the position, not an affirmation of an explicit goal of Ergen’s.

Judge Shelley Chapman then told Ketchum he was “obligated to give truthful answers.”

“If it occurs to you that you gave an answer at your deposition that may not accurately reflect the truth, you’re obligated to correct that,” Chapman said.

It is unclear how Ketchum’s testimony will affect the outcome of the trial. LightSquared has said that it was always Ergen’s goal to find a way to control LightSquared’s bankruptcy. Ketchum’s testimony suggests it eventually became Ergen’s goal to acquire a blocking position, but the timing of when he decided to do so remains unclear.

LightSquared’s lawyers also need to convince Chapman that the purchases were improper, and that they were tied to Dish’s ambitions to expand into the spectrum space.

While Dish eventually made a $2.2 billion bid for LightSquared, it withdrew the offer last week. It is unclear whether Dish is still interested in acquiring LightSquared’s broadband rights.

LightSquared is pursuing the trial despite Dish’s withdrawal because, if Ergen and Dish are found liable, LightSquared could recoup billions of dollars for the benefit of creditors, and Ergen’s top-priority creditor claims would be subordinated.

LightSquared went bankrupt in 2012, when the Federal Communications Commission blocked its plans to build a massive wireless network amid fears that it could interfere with GPS systems.

Ergen testified on Monday, insisting the debt purchases were personal and not business-oriented, calling LightSquared a “great investment.”

Phil Falcone, the head of Harbinger Capital Partners, which owns LightSquared, had been scheduled to testify on Wednesday, but will do so on Thursday after Ketchum’s testimony took longer than expected.

The lawsuit accuses Dish and Ergen of delaying the closure of trades to hinder LightSquared’s restructuring talks with creditors.

In one instance, Ergen’s investment vehicle directed a seller from which it was buying LightSquared debt to vote against a one-week extension that would have given LightSquared more time to negotiate a consensual restructuring with creditors.

Separately, Harbinger on Wednesday asked a Manhattan federal judge for permission to appeal Chapman’s Nov. 21, 2013, dismissal of its lawsuit seeking damages from Dish and Ergen for their alleged fraudulent effort to strip it of control over LightSquared.

Chapman said Harbinger failed to allege enough facts to support its fraud claims, but Harbinger said the judge interpreted the law incorrectly.

Harbinger also said it believes it has an automatic right to appeal, but asked for permission in the event it does not.

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