Dish, EchoStar Scheme Aimed to Protect Ergen if Debt Maturities Can't Be Managed: Suit

EchoStar transferred billions of dollars’ worth of assets from Dish Network and its DBS subsidiary “out of reach of existing creditors, in exchange for nothing” in a “brazen series of related transactions” designed to protect controlling shareholder and Dish CEO Charlie Ergen, alleged a fraud complaint (docket 1:24-cv-03646) Monday by U.S. Bank Trust Co., National Association, in New York Supreme Court in Manhattan.

Defendants Dish DBS, EchoStar, Dish Network, Dish DBS Issuer and DBS Intercompany Receivable (InterCo) “offered the stolen property back” to Dish Network and DBS creditors, “but only on the condition that they accept steep discounts on their claims,” alleged the complaint. The offer was rejected, and the plaintiff seeks to recover the “wrongfully acquired assets.”

The “scheme” was concocted to protect Ergen if the defendants can’t manage their upcoming debt maturities “and need to reorganize,” alleged the complaint, saying, “the risk is real.” Auditors for EchoStar, Dish Network and DBS issued “going concern qualifications," highlighting “the uncertainty around the Defendants’ financial condition,” the complaint said. “Realizing the risk that Ergen’s equity interests in DISH Network (and DBS) were in peril, Ergen and EchoStar transferred the various assets to a holding company that Ergen controls -- one with no material outstanding obligations,” it said.

The scheme “appears to have begun around the time EchoStar amended the terms of its deal with DISH Network,” which led to Dish becoming a subsidiary of EchoStar instead of the reverse “as had been originally contemplated,” the complaint said. “As a result, none of the value of the merger would be available to support DISH Network’s obligations to creditors,” it said.

In January, after the amended transaction closed, EchoStar “ransacked its new subsidiary,” causing Dish to transfer spectrum licenses -- a portion of which EchoStar valued at $9 billion -- to a direct, wholly owned subsidiary of EchoStar; reroute a $4.7 billion intercompany loan from DBS to a direct, wholly owned subsidiary of EchoStar; and siphon 3 million Dish TV subscriber contracts from DBS and port them to a “newly-created subsidiary, DBS Issuer," the complaint alleged. The series of actions placed the assets “outside of the reach of DBS’s existing creditors,” it said. In exchange, EchoStar and the other transferees “paid DBS and DISH Network nothing -- not one dollar -- for the transferred assets,” alleged the complaint.

Days after “looting DBS and DISH of billions of dollars’ worth of assets,” EchoStar announced “distressed, coercive exchange offers that sought to induce holders of notes issued by DBS and DISH Network to exchange their notes for new ones issued by the entities holding the transferred assets,” the complaint said. DBS and Dish’s bondholders’ reaction was “immediately negative, leading EchoStar to terminate one of the two exchanges,” it said. Despite EchoStar’s intent to proceed with the second exchange, the majority of bondholders “refused to participate” as of the exchange’s expiration date, it said. “Having no choice, EchoStar terminated the second exchange offer as well,” the complaint said.

EchoStar’s assertion that the transactions were designed to “further unlock incremental strategic, financial and operating flexibility for its business following completion of [EchoStar’s] merger” with Dish, “is absurd,” said the complaint. The transfers caused DBS and Dish to lose “billions of dollars’ worth of assets for no consideration whatsoever,” it said.

The transactions are “exactly what they appear to be,” said the complaint: “bad faith maneuvers designed to hinder, delay, and defraud creditors of DBS and of DISH Network, lower the trading price of those creditors’ bonds, and divert value from creditors to shareholders.”

The plaintiff seeks declaratory judgment under New York's Civil Practice Law and Rules vs. DBS. It also asserts actual intent fraudulent transfer and constructive fraudulent transfer under the Colorado Uniform Fraudulent Transfer Act vs. DBS, EchoStar Receivable and DBS InterCo; and it asserts actual intent and constructive fraudulent transfer under CUFTA vs. DBS, Dish Network and DBS Issuer.

Plaintiff requests judgments avoiding and unwinding the InterCo loan transaction and DBS subscriber designation as actual or constructive fraudulent transfers, with recovering amounts transferred. Plaintiff also seeks a judgment enjoining the defendants from any additional fraudulent transfers, plus damages, a money judgment against the defendants who received the fraudulently transferred property "in the event that unwinding the transfers does not fully compensate Plaintiffs”; pre- and post-judgment interest; and attorneys’ fees. Dish and EchoStar didn't comment.