September 26, 2013 10:50pm PT by Aaron Couch
Shareholders Sue Dish, Charlie Ergen Over $2.2 Billion Spectrum Bid
A Dish Network shareholder is suing the company and chairman Charlie Ergen after the company made a $2.2 billion bid for a bankrupt broadband provider -- a move that could net Ergen hundreds of millions, but which the suit says is not in Dish's best interests.
The Iron Workers Mid-South Pension Fund filed the suit in federal court in Colorado and also names the Dish board as defendants. It says Ergen became the largest creditor of broadband network provider Lightsquared Inc., after it filed for bankruptcy protection in May 2012. Ergen paid approximately $847 million to acquire LightSquared's debt, which had a par value of more than $1 billion. LightSquared had "substantial holdings of valuable spectrum assets," which Dish was interested in acquiring.
After acquiring LightSquared's debt, Ergen was in a prime position to either acquire its assets in bankruptcy court, or gain substantially if he was outbid, the lawsuit says.
"As Chairman and controlling shareholder of Dish, defendant Ergen knew that he could force the Company to make such a bid," the suit claims.
In May 2013, Egren bid $2 billion to purchase all of LightSquared's assets, which prevented anyone, including Dish, from bidding less than $2 billion for the assets – and guaranteed him a substantial profit should another bidder emerge. Dish ultimately offered $2.2 billion for LightSquared's assets, and no other bidder has thrown its hat into the ring.
Before its bid, Dish assembled a two-person committee – made up of directors Gary S. Howard and Steven F. Goodbarn – to determine if it should purchase LightSquared's assets. The suit calls the committee "a farce" without real authority to voice concerns about a possible conflict of interest between Egren's potential personal gains from the deal. The committee was disbanded by the board two days before Dish's $2.2 billion bid, the suit says.
The suit alleges the Dish board failed to ensure dealings that benefited Ergen would be fair to the company. It also portrays the Dish board as being stacked with Ergen loyalists, including his wife, and says Ergen has a history of using his control over Dish for the gain of himself or his family.
"Dish has been and will continue to be exposed to significant losses due to the wrongdoing," the suit reads.
At a trial by jury, the suit seeks the "disgorgement of any profits" Ergen will receive as result of his purchase of LightSquared's debt, and asks board members to make up for the "amount of damage sustained" by Dish as a result of their alleged "breaches of fiduciary duties." It also seeks for the company to implement reforms to keep similar events from happening in the future.
This isn't the first suit centering on the LightSquared purchase. On Aug. 6, 2013, Harbinger Capital Partners, LightSquared's controlling shareholder, filed a complaint against Dish and Ergen in New York bankruptcy court. It accused them of fraudulent behavior in the purchase of LightSquared's debt and the bid to acquire its assets. Harbinger is seeking $2 billion in compensation and $2 billion in punitive damages.
Dish did not immediately respond to request for comment.