Tuesday, February 21, 2012

LightSquared: Corruption Cubed

Technology company LightSquared was launched by Harbinger Capital Partners--the hedge fund of Philip Falcone--in 2010. It is essentially the rebranding of the company SkyTerra, which Harbinger gained control of in 2008. The principal goal of the company is develop a nation-wide, satellite-based 4g wireless network, through which it could sell access to various telecommunications companies like AT&T, Verizon, and cable companies, along with many smaller companies.

Sounds like it has potential, right? Unfortunately, LightSquared has run into some major complications, as interference from its network appear to effect GPS signals, thus potentially endangering air traffic and disrupting GPS signals, in general. So, as of right now, the company is stalled according to the Wall Street Journal:
The hedge-fund manager who poured billions of dollars into a plan by LightSquared Inc. to build a new national wireless network found out Tuesday that federal regulators had moved to block it, saying it was likely to interfere with Global Positioning System devices.
That left investors in his hedge fund, Harbinger Capital Partners, which had provided much of the funding, wondering what would become of their money. 
On Friday morning, addressing those investors in an hourlong conference call, Mr. Falcone offered no details on how he planned to overcome the setback and took no questions from listeners.
LightSquared investors had already seen a massive loss in their investment values, due to a previous markdown of LightSquared's value. Harbinger iteself--once with assets above $25 billion--lost big, now with total assets at less than $4 billion.

And the news is getting worse for LightSquared. Yesterday, LightSquared missed a payment due to UK company Imarrsat:
A lucrative revenue stream appeared to have ended for Inmarsat on Monday when the UK satellite operator said that LightSquared, its US partner, had failed to pay a $56.25m instalment for use of radio spectrum in the US.
This loss of revenue for Imarrsat--whose own financials haven't been super--might have serious repercussions for the company and could turn it into a potential takeover target.

Last Friday, a number of investors also filed suit against Falcone and Harbinger Capital. All in all, this could just be the story of a risky business venture that went bad. But the Daily Caller has discovered that there is a lot more to this story. Apparently, Falcone, Harbinger, and LightSquared have engaged in an extended game of influence-buying with the current Administration. Some highlights from TheDC investigation:
According to White House visitor logs, Obama’s new FCC chairman, Julius Genachowski, a classmate of the president’s from Harvard Law School, met with White House Personnel Director Don Gips on Feb. 18, 2009. Gips’ personal financial disclosure forms show he had between $250,000 and $500,000 of his personal finances invested in SkyTerra via stock options. Gips bundled at least $500,000 in donations to Obama’s 2008 election campaign, and served on the advisory board of Obama’s White House transition team. 
It’s unclear what specifically Gips and Genachowski were discussing at that White House meeting; but shortly after that meeting SkyTerra named two members of Obama’s White House transition team to senior leadership positions at the company. On March 9, 2009, SkyTerra hired Gary Epstein, an FCC political appointee for the first few months of the Obama administration and a member of Obama’s transition team, as its executive vice president. On May 11, 2009, SkyTerra named Jeff Carlisle, another Obama transition team member, to serve as its vice president of regulatory affairs.
On March 22, 2010, SkyTerra’s shareholders approved the merger with Falcone’s Harbinger. Four days later, on March 26, 2010, FCC staffers approved the merger. Commissioners never got the opportunity to vote on the merger, a move that is uncommon for such a large-scale deal with far-reaching implications in the marketplace and in the federal wireless policy realm. Usually, with a decision this important, the FCC would elevate it from the bureaucratic staff level to the full Commission for approval. 
Three days later, Epstein acquired several hundred thousand shares of SkyTerra stock, according to SEC filings. On April 5, 2010, Gips, a top Obama aide who later became the U.S. ambassador to South Africa, cashed in his stock options for about a half-million dollars.
Note what has happened, so far: Obama insiders Gips and Epstein, after greasing the skids for SkyTerra/LightSquared, bank big money and stocks.

On April 12, 2010, just one week after Gips cashed in his personal stock, the Public Interest Spectrum Coalition – a left-wing group comprised of the New America Foundation, Free Press, Media Access Project and Public Knowledge — filed comments with the FCC opposing efforts to reconsider part of the agency’s decision to allow the Harbinger–SkyTerra merger. That coalition wanted to preserve the FCC’s requirement that LightSquared would not provide spectrum to AT&T and Verizon without prior FCC approval. 
Left-wing billionaire George Soros is reported to have $200 million invested in Harbinger. His Open Society Institute has donated more than $1 million to the four groups that comprise the Public Interest Spectrum Coalition.
This move by the Public Interest Spectrum Coalition led to a big drop in LightSquared's value on paper. Luckily (right), Gips (and others, I am sure) cashed out just in time to get a quick profit. Of course, long term insider investors--like Soros--saw this as a bump in the road and something--cutting out giants like At&T and Verizon--that would pay big dividends in the future, though it now appears they were quite wrong in that regard.

There's a great deal more in TheDC piece, well worth the read if it doesn't make you sick to your stomach, and taken as a whole, it actually provides a pretty good blueprint for how to manipulate the system.

But personally, I'm struck by something else: the LightSquared-Solyndra comparisons being made. In the case of both, government agencies that would have regulatory oversight on the business activities of these companies were approached--as they should have been--during planning and start-up. In both cases, this occurred during the Bush Administration, which--though certainly accommodating to a degree--failed to provide the blanket approvals that were sought. The Obama Administration, however, had no problem pushing through these companies' agendas.

Criticisms of the Obama Adminsitration's apparent collusion with various private interests are often met with the "that's just the way it's done" defense. But apparently, the Obama administration is prepared to go that extra mile to really give people maximum return on the money they spend paying off politicians.

Cheers, all.

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