Lightsquared could go tits up

Philip Falcone, who made a fortune on the sub-prime mortgage market, has an appointment with karma after investing in a wireless start-up outfit which looks like it is about to go tits up.

Falcone’s $5 billion Harbinger Capital Partners hedge fund could run out of money during the second quarter of 2012, thanks largely to its investment in LightSquared.

LightSquared registered a $427 million net loss during the first nine months of this year, and according to Reuters may not be able to “continue as a going concern.”

Falcone’s hedge fund has sunk over $3 billion in equity and loan commitments. This is all cash made during the subprime mortgage fiasco which dumped the world into recession.

LightSquared said that it has enough cash for the next several quarters and will not need any more money until the Federal Communication Commission rules on a company plan for dealing with potential interference with global positioning systems.

Harbinger is saying nothing. But in July, Falcone’s hedge fund loaned about $184 million to LightSquared in return for warrants that can be converted into 2.9 million shares of LightSquared stock. It is the outfit’s largest investor.

Wall Street had watched the LightSquared thing play out with some interest. Falcone made a big bet on wireless and it was incredibly risky. Wireless has a habit of going tits up and require huge amounts of money before they become operational. Falcone began raising money for LightSquared after capital markets started becoming less interested in risky ventures. There were also fears that the network could stuff up GPS for planes and the military.

LightSquared wants to provide high-speed 4G wireless broadband services to all corners of the United States. But it managed to make just $30 million in revenues during the first nine months of the year.

Politicians are also moving against LightSquared’s planned network because of the interference fears. LightSquared says it has a cunning plan to deal with the potential interference problems, but opponents do not believe a world of it.

Earlier this month Falcone warned investors in his hedge fund that U.S. securities regulators are considering charging him with a number of securities law violations. The U.S. Securities and Exchange Commission informed Falcone that he could face civil enforcement action over an allegation his fund engaged in manipulative trading involving an unnamed debt security.

It is not connected to Lightsquared but there must be those who feel that Falcone’s deal with the devil is up and the doors of hell are swinging open.