Lawyers for Dish Network founder Charlie Ergen grilled Phil Falcone on Thursday, asking the hedge fund mogul about his dust-up with regulators and placing the blame for LightSquared’s woes clearly on his shoulders.
Falcone is fighting to retain control of LightSquared, his bankrupt high-speed telecom.
LightSquared has accused Dish of wrongfully acquiring debt in the telecom — and in his testimony during a trial on the issue, Falcone tried to explain to the judge how Ergen quietly amassed $800 million in LightSquared debt.
But lawyers for Ergen turned the tables on Falcone, seemingly putting the businessman on trial.
“The [Securities and Exchange Commission] accused you of fraud, didn’t they?” Ergen’s lawyer, Jim Dugan, asked Falcone during a heated moment in the all-day session.
“Yeah, that was one of the accusations,” Falcone said, referring to a civil complaint that has resulted in his being banned from the securities industry for five years.
“Isn’t it true that it [capital-raising efforts by Jefferies for LightSquared] fell apart, Mr. Falcone, because of problems you were having with the SEC?” Dugan asked.
“Not that I’m aware of,” said Falcone.
Dugan refused to relent and followed up by showing Falcone an e-mail referencing a “Phil Risk Premium.”
“Was there anyone who tried to raise capital for you whatsoever, who told you about a ‘Phil Risk Premium’?” Dugan asked.
“No,” Falcone said.
Falcone’s hedge fund, Harbinger Capital, is LightSquared’s largest shareholder.
LightSquared accused Ergen of hiding purchases of the debt on behalf of Dish so the pay-TV company could buy LightSquared’s assets cheap.
Strategic investors were barred from owning the debt. Ergen claims he bought the debt as a personal investment.
Ergen, if found by the judge after the trial to have purchased the debt on behalf of Dish, could be pushed to the back of the line when it comes to payback on his $800 million debt investment.
Ergen could also find it hard for Dish to make a play for LightSquared — thus leaving control of the restructuring and the future company in Falcone’s hands.
Dish recently dropped a $2.2 billion bid for certain of LightSquared’s spectrum assets, but there have been questions around whether the company will return after the trial.
The two billionaires are bitter rivals.
Despite the harsh questioning, Falcone stuck to his guns on Thursday, saying that Ergen’s secretive moves to build a controlling stake, which also gave him so-called “blocking” powers, created problems for LightSquared, including scaring off other potential bidders.
“I think strategics [investors] felt that getting involved in a situation with Dish and Ergen … they don’t know what they’re getting involved with. Why bother?” Falcone told Dish lawyer Robert Giuffra.
Falcone appeared to be in a good mood and drew lots of laughter from those watching, often without even trying.
One such case was when he made fun of bond investor Ira Rennert’s massive Sagaponack, N.Y., compound.
“I’d rather live in a one-bedroom,” Falcone snorted in response to remarks by Giuffra that LightSquared could become a Rennert-like mansion depending on what regulators decide.