LAS VEGAS (CN) - Dish Network's executive chairman bought a bankrupt company's assets with his own money and sold it to Dish for hundreds of millions of dollars in profit, Dish stockholders claim in a derivative complaint.
DCM Multi-Manager Fund sued Dish Chairman Charles W. Ergen, who owns 88 percent of the voting shares of company, in Clark County Court. Also sued are his wife Cantey M. Ergen, Dish Network Corp. and six members of the Dish.
"This action involves an egregious conflict of interest in which the executive chairman and largest stockholder of Dish purchased a certain asset, and the convincing his company to buy that asset for a higher price, thereby setting himself up to make hundreds of millions of dollars in profit," the complaint states.
It claims that Ergen purchased LightSquared debt with his own money, at a discount, during LightSquared's bankruptcy. "Then Ergen, who has the power to control the board with his approximately 88.0% percent of the total voting power of the company, intentionally caused Dish to put in a bid to buy LightSquared out of bankruptcy. This is where the conflict arises. The more Dish pays for LightSquared, the more money Ergen makes on the sale the of LightSquared debt that he has acquired because he is a creditor of LightSquared."
LightSquared is a communications and broadband service provider that offers satellite-based mobile voice and data products. It leases a spectrum from the Federal Communications Commission.
LightSquared lost money when the FCC proposed suspending its authorization to build a new network that would extend its coverage to 260 million people. The FCC objected to the way LightSquared was being managed by its corporate parent, Harbinger Capital Partners, and its controlling partner, Phillip Falcone, according to the complaint. The SEC charged Falcone with securities fraud in 2012 and he was banned from the securities industry for 5 years, and he and Harbinger were fined millions of dollars "for their manipulation of the securities markets," according to the lawsuit.
DCM claims that Ergen saw LightSquared was headed for bankruptcy and bought its spectrum with his own money for $1 billion, in anticipation of having Dish buy it from him later.
On July 13 this year, Dish announced its plan to buy LightSquared for $2.2 billion, according to the complaint.
"As most companies would, when faced with a conflicted transaction, a special committee (the 'Special Committee') of purportedly independent directors was set up to evaluate the deal," the complaint states. "However, the Special Committee was abruptly disbanded shortly after its formation. Two days after the Special Committee was broken up, Dish publicly announced its bid to acquire LightSquared. Then, two days the announcement, one of the two Special Committee members, who was a nearly eight-year veteran of the board, abruptly resigned amid a disagreement over the company's handling of the bid for LightSquared.
"Defendants' intentional misconduct has caused and will continue to cause serious damage to Dish and its public stockholders. Defendants' intentional misconduct shows that they have scant regard for the interests of Dish and its minority stockholders, and instead operate the company to favor the interests of its controlling stockholder, Ergen. In authorizing the bid for LightSquared, each of the defendants intentionally violated and continues to violate applicable law by directly breaching the remaining defendants' breaches of their fiduciary duties."
DCM seeks damages for breach of fiduciary duty, disgorgement, restitution and costs.
It is represented by G. Mark Albright, with Albright, Stoddard, Warnick & Albright.