Billionaire Philip Falcone told a judge that Dish Network Corp. (DISH:US) Chairman Charlie Ergen’s secret purchases of debt in broadband provider LightSquared Inc. had him “turning over rocks” to find out who was behind them.
Falcone, whose Harbinger Capital Partners LLC financed LightSquared, is seeking to persuade U.S. Bankruptcy Judge Shelley Chapman in Manhattan to reject Ergen’s $1 billion claim against the company, saying he wasn’t eligible to buy the debt. Barring the claim would leave more money for other creditors.
LightSquared filed for bankruptcy in May 2012 after failing to win regulatory approval to use its airwaves. Around the same time, Falcone and his colleagues were trying to figure out who was behind the fund buying the debt. E-mails displayed in court showed Falcone’s suspicions swinging between investors including AT&T Inc. and Mexican billionaire Carlos Slim.
“We believed it was of importance not only for the company, but so we could work with whoever it was,” Falcone, 51, testified today. Without knowing, “it’s almost impossible for someone to come in and invest and get a deal done,” he said.
James Dugan, Ergen’s lawyer, asked Falcone during cross-examination why he didn’t use the subpoena process available in bankruptcy (SKYT:US) to identify the person behind the fund. Falcone said he didn’t know about the process and left it to his lawyers.
“Do you normally let the lawyers decide how many rocks to turn over?” Dugan asked. “Do you have good lawyers?”
“Yeah, I have pretty good lawyers,” Falcone responded, prompting a burst of laughter in the courtroom.
When Falcone’s answers to questions about a hypothetical sale of LightSquared differed from what he said under oath in a pre-trial interview, Dugan asked how he had prepared for today’s testimony. In the earlier questioning, Falcone said there were no conditions under which he would sell. Today he said he would sell for the right price.
“I just looked at a bunch of documents,” Falcone said.
Falcone said he personally has $500 million to $700 million invested in Harbinger, which he described as representing “more than a majority” of his net worth.
Harbinger, which controls the board of LightSquared, has 30 percent to 40 percent of its assets invested in the company, Falcone testified. Its current exposure is as much as $1.8 billion, he said.
Ergen, 60, is accused of accumulating debt in Reston, Virginia-based LightSquared to acquire its airwaves for Dish, his satellite-television company. Harbinger and LightSquared claim that rival companies such as Englewood, Colorado-based Dish were barred from buying the debt.
Ergen’s lawyers have said he was investing personally and kept his name out of it to avoid driving up the price. In testimony this week, he said that by late 2011, Dish didn’t consider LightSquared an attractive acquisition.
Dish Treasurer Jason Kiser, who advised Ergen on the purchases, told the court last week that he didn’t consider whether he was acting for the company or its chairman when he first looked into buying the debt in 2011.
Ergen said he heard from Kiser that Dish wasn’t eligible to buy the debt, removing a possible conflict. Ergen said Kiser often helped him with personal investments and wasn’t compensated for those services.
LightSquared filed for bankruptcy after the Federal Communications Commission blocked the company’s service, saying it might interfere with civilian and military global-positioning-system navigation equipment. The company listed assets of $4.48 billion and debt of $2.29 billion.
Its proposed reorganization plan includes $2.5 billion in financing backed by Fortress Investment Group LLC (FIG:US), JPMorgan Chase & Co. (JPM:US) and Melody Capital Advisors LLC. The plan would require regulatory approval.
Dugan reviewed internal e-mails in which Falcone speculated or stated that Ergen was the anonymous buyer. Some of the e-mails were sent by Falcone to reporters at the Wall Street Journal and Reuters. In one, Falcone told a reporter Ergen was buying the debt. He said today that he didn’t know at the time whether this was true.
“He would have to corroborate that,” Falcone said of the reporter. “It can’t just come from one source.”
Falcone today said he suspects the FCC will give LightSquared approval this year, boosting the value of the company and his own investment.
Although he stands to make billions of dollars if approval comes through, he said that if the situation shifted and resulted in a total loss for him personally, “it wouldn’t change my lifestyle.”
The case is In re LightSquared Inc., 12-bk-12080, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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