A new complaint filed in a U.S. District Court claims
Globalstar Inc. misled investors about
the health of the company’s satellite constellation before a November stock offering. The complaint also says
one or more former Globalstar employees who have been interviewed on the subject are
willing to back up the allegation.
The complaint is the latest in a series of securities class-action lawsuits filed since Globalstar’s February disclosure that its 40-satellite constellation’s S-band payload, which permits two-way voice communications, was degrading faster than expected and might
not survive beyond 2008. While L-band data service would continue, Globalstar’s stock began to fall sharply following the announcement that the more-profitable voice service might cease functioning.
class-action suits have been filed in the U.S. District Court for the Southern District of New York. But the latest, filed Aug. 15 on behalf of the Connecticut Laborers’ Pension Fund, sharpens the attack on Globalstar by saying its allegations are based on “interviews with former Globalstar employees, including a former employee engaged in monitoring Globalstar satellites.”
The 53-page complaint was filed Aug. 15 by the New York law firm Schoengold Sporn Laitman & Lometti, P.C. That firm’s lead counsel for the Globalstar case, Ashley Kim, did not respond to telephone and email messages seeking additional information about the nature of the former employees’ statements.
In an Aug. 31 written response to Space News inquiries, Globalstar attorney W. Stuart Dornette of the Cincinnati law firm Taft Stettinius & Hollister LLP dismisses the latest allegations as a typical maneuver by plaintiffs in a securities class-action case.
“Referring to unidentified former employees has become a common practice [in securities lawsuits] because it appears to add some credibility to the allegations,” Dornette in his response. “But saying an allegation is based on statements of a former employee does not make it true.”
Dornette said 40 percent of all securities lawsuits are dismissed by the courts, in which case the plaintiffs’ lawyers are not paid. He said attorneys may thus be tempted to suggest more
serious evidence than they have at their disposal to win court approval to take the case.
The New York District Court has ordered Milpitas, Calif.-based Globalstar to respond to the allegations and the company will do so “in the near future,” Dornette said. “We intend to address, with specificity, the allegations and demonstrate that the complaint fails to establish a claim against Globalstar and that many of its statements are either irrelevant or untrue.”
The Aug. 15 complaint centers on allegations that, in the summer of 2006, Globalstar’s engineers noted a decline in the voice service and that the company closely followed service quality with three teams, each composed of up to four engineers, rotating to provide 24-hour observation of the satellites’ individual and collective health.
The complaint alleges that Globalstar had only 37 functioning satellites at the time, not the 43 the company outlined to investors in preparation for the November stock offering. It says this figure is important because service outages become much more frequent once the constellation has less than 40 satellites in operation.
For Globalstar investors, the constellation’s health is especially important because the company has said it will finance up to two-thirds of the $1.2 billion it
needs for its second-generation constellation with revenues from operations. Globalstar’s second generation of satellites is under construction, with deliveries expected starting in 2009.
Replying to this specific allegation, Dornette noted that Globalstar’s statements to the market before the stock offering referred to 43 satellites including in-orbit spares temporarily placed into service, and also including satellites that had been removed from service but are considered restorable. At any given time, he said, fewer than 43 satellites might
Since its February announcement of the quickening decline in the voice service, Globalstar has focused on securing its existing customer base with lower-cost subscriptions in return for long-term commitments. The company also has
been devising new ways to generate revenue from its data services.
Globalstar has yet to contract for the launch of its 48 second-generation satellites. A final group of four first-generation satellites is scheduled for launch in late October.