LightSquared Inc. filed for bankruptcy in 2012, saying it will seek to resolve the concerns of U.S. regulators who thwarted the company’s plan to deliver high-speed wireless to as many as 260 million people. LightSquared, based in Reston, Virginia, listed assets of $4.48 billion and debt of $2.29 billion as of Feb. 29 .

LightSquared

Later, DISH Network Corp. (NASDAQ:DISH)’s  Charlie Ergen made a $2 billion bid for bankrupt wireless provider LightSquared, a move that could pit Ergen against fellow billionaire and LightSquared financier Philip Falcone.The move could add LightSquared’s contested wireless spectrum to Ergen’s growing spectrum war chest, and it represents Ergen’s continued efforts to expand his satellite Internet and TV business into mobile.

“What is shocking and wholly uncontemplated,” LightSquared said, is that  Mr. Ergen purchased $600 million of the company’s debt through a fund, SP Special Opportunities LLC, which he controls.

LightSquared said satellite mogul Charlie Ergen has been “gaming” his recent purchases of hundreds of millions of dollars of the company’s debt in an effort to seize control of the wireless company’s bankruptcy case.

A battle between billionaire financier Phil Falcone and satellite mogul Charlie Ergen over bankrupt wireless venture LightSquared is about to get ugly when LightSquared’s founder, Falcone is mulling a reorganization plan that would seek to compensate all creditors — except for Ergen, as noted in an exclusive report from Kaja Whitestone of The New York Post.

Ergen Dodging Loan Limits

Ergen has quietly amassed more than half of LightSquared’s $1.7 billion of secured loans through hedge-fund firm Sound Point, a person with knowledge of the situation told The Post.

The satellite mogul used the hedge fund to make the purchases specifically because of the loan limits on strategic buyers, Ergen has said.

As a Competitor, Ergen Shouldn’t be Compensated

If Falcone moves forward with the plan, LightSquared would argue before a bankruptcy judge that Ergen shouldn’t be compensated as part of the reorganization because his DISH Network Corp. (NASDAQ:DISH) is technically a competitor and therefore is in violation of LightSquared’s loan agreement, which bans strategic buyers from owning its debt.

If the judge agrees, Ergen could find himself stuck with $1 billion of LightSquared’s debt without an obvious payoff.

LightSquared has an exclusive deadline of July 15 to submit a restructuring plan. After that, creditors, including Ergen, can put forth a competing plan.

Risk of Losing Control of LightSquared to Ergen

In the meantime, LightSquared’s investment bank, Jefferies Group, has been told to raise just $2.2 billion to repay creditors rather than the $3 billion Falcone initially sought to cover debt and equity holders.

If the judge nixes Falcone’s $2.2 billion reorganization plan, he will have to scrounge up $3 billion to pay off creditors — or risk losing control of LightSquared to Ergen.

Ergen is expected to counter Falcone’s reorganization plan with his own $2 billion bid for some of LightSquared’s spectrum assets.

The upside to Ergen’s plan is that the secured debt holders, who are owed roughly $1.8 billion including interest, will be repaid immediately, according to wireless expert Tim Farrar.

In contrast, the money being raised by Jefferies for LightSquared is contingent on getting approval from the Federal Communications Commission for a spectrum swap proposal that would allow it to operate a nationwide wireless network. That process could take months, according to Farrar.