Globalstar, Loral Accused of Fraud in Holders' Suit
New York, Feb. 28 (Bloomberg) -- Globalstar Telecommunications Ltd. and the satellite-telephone company's largest owner and managing general partner, Loral Space & Communications Ltd., have been accused in a lawsuit of deceiving investors.
A complaint filed today in U.S. District Court in Manhattan says Globalstar, Loral, and Bernard Schwartz, chairman of both companies, misled shareholders in interviews and regulatory filings by withholding critical information. Loral owned about 39 percent of Globalstar equity and 27 percent of its debt at the end of December, according to a U.S. Securities and Exchange Commission filing.
Globalstar didn't release figures indicating the company's ``total failure in the market'' until Oct. 27, after previously making encouraging statements throughout 2000, the complaint says.
Telephone calls to Globalstar and Loral for comment were not immediately returned.
The suit comes two days after Globalstar's bondholders sued the San Jose, California-based company for halting payments on the debt last month. The complaint seeks class-action status on behalf of other investors and undetermined damages.
Globalstar, operating since 1999, has a $4 billion system of 48 low-earth-orbit satellites designed to allow mobile phone users to make calls from virtually anywhere in the world.
Like rivals Iridium LLC and ICO Global Communications, which filed for bankruptcy in 1999, Globalstar lured far fewer customers than expected, leaving the company struggling to survive. Analysts said hardware problems and expensive service charges made users leery about signing up with Globalstar.
Globalstar shares rose 3 cents to 66 cents in afternoon trading on the Nasdaq Stock Exchange. The shares, which reached a 52-week high of $31.50 last Feb. 29, have fallen more than 97 percent in the past 12 months and 27 percent so far this year. Loral shares, which have fallen more than 75 percent in the past 12 months, fell 18 cents to $3.78 in midafternoon trading.
Schwartz, one of the Democratic Party's largest donors, personally contributed more than $1 million to party committees in 1997-98 and again in 1999-2000, according to U.S. Federal Election Commission records.
Feb/28/2001 15:04 ET
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