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Iridium creditors sue Motorola for $1.99bn

Suit alleges Motorola syphoned off cash from doomed satellite comms company

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Iridium creditors have begun legal action against Motorola. They claim the company, which created Iridium and held an exclusive contract to maintain the comms operation's 66 satellites, failed in its legal duties. The suit, filed with the New York District Court, alleges that Motorola was aware of Iridium's problems and failed to inform fellow shareholders. Instead, the suit claims, Motorola acted to get as much money out of the company as it could before the inevitable happened and Iridium was liquidated. According to a report in yesterday's Mail on Sunday, the creditors believe Motorola signed contracts with Iridium that led to nearly $1.4 billion being paid to Motorola to no benefit to Iridium. They also claim Motorola covertly competed with Iridium by producing satellite systems for Teledesic - a deal that brought Motorola a 26 per cent stake in the 'Internet in the sky' company. Teledesic is, of course, run by Craig McCaw, whose decision to pull out of negotiations to buy Iridium led to the company's liquidation. It's no surprise, then, that creditors might be a tad aggrieved with Motorola for working with Teledesic, even though the latter never really competed with Iridium. The cellphone company's satellites were never designed for broadband data networking, the role Teledesic has in mind for its own devices. As for Motorola's other alleged infringements, the creditors may have a point, but whether it justifies legal action is another matter. Motorola has, after all, sunk a heck of a lot of money into the venture, and last year took some a major financial beating thanks to its exposure to the satellite venture. It's not surprising then that over time it has acted to minimise that exposure. Proving that it wielded unacceptable power over Iridium and used that power to force a series of valueless contracts on it will, however, be difficult to prove. However, the creditors, owners of IOU bonds worth around $1.99 billion, have a lot to lose if they don't pursue the case. And expect them to pursue it aggressively. ®

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