But Time May Be Short As Investors Bet On Failure

In investing, a "hedge" is technically defined as an investment which can be expected to perform inversely to the general market, one which provides a way to protect a portfolio from a general market decline. But "hedge fund" in modern vernacular has come to describe investment firms which take huge gambles in the hopes of big paydays.

When Harbinger Capital Partners invested in LightSquared, it was betting that radio spectrum, bought at prices reflecting its availability only for satellite downlinks, could be repurposed into a much more valuable terrestrial 4G LTE network by getting the Federal Communications Commission to lift the weak-signal restriction. Instead, as the GPS interference problem looks ever more intractable, LightSquared is seeing its own debt being traded to other gamblers at steep discounts, and its fight against the GPS community may be entering its end game.

In response to recent testing by the US Air Force Space Command on behalf of the Space-Based Positioning, Navigation, and Timing Executive Committee, which concluded that the 4G network and GPS simply can't exist as neighbors, LightSquared has called the tests "rigged." CNET reports that on a conference call Wednesday with reporters, LightSquared executives Jeffrey Carlisle and Geoff Stearn, and consultant Ed Thomas, a former chief engineer at the FCC, said the tests were designed to produce a desired, negative result.

CNET reports Thomas commented, "They used an arbitrary figure to determine failure, which has no effect on performance. And they were allowed to select their own devices to test, some of which are not even sold commercially. The whole thing looks like a college student conducting an experiment for school who draws the curve in before making the measurements."

Harbinger is managed by Philip Falcone, who the Wall Street Journal describes as one of Wall Street's most famous distressed-debt investors. Now, in a scene which would no doubt tickle the hearts of Occupy Wall Street protesters, another "vulture capitalist," 75-year-old Carl Icahn, has reportedly been buying up LightSquared debt, which sunk to trading at about 40 cents on the dollar in December after delays in FCC approval of the 4G network made earlier investors edgy.

Icahn has a history of acquiring interests in distressed companies he expects to go bankrupt, then seizing control after they actually file. Harbinger has $2.9 billion of its own capital in LightSquared, which has some of Falcone's own investors making noise. The WSJ reports investors are betting LightSquared will run out of cash before it can get its 4G network up and running. But if LightSquared fails, it won't be the end of the story. The radio spectrum the company controls will only be back in play.

FMI: www.lightsquared.com