The insider trading allegations against certain Intelsat shareholders and a key member of staff is coming to court in July.

A Class Action is being heard in the US District Court (Northern District of California, at Oakland) by Judge Jeffery White. The Action revolves around allegations that Intelsat shareholders Silver Lake Group LLC and BC Partners LLP, some senior partners at the two businesses who were also directors at Intelsat  and some of their investment funds and David McGlade, chairman at Intelsat, made use of inside information in order to sell shares in Intelsat prior to a near-total collapse in the share’s value.

The Action alleges that the defendants made unlawful use of non-public material and collectively gained some $185 million in profits over the sale of Intelsat stock. The listed defendants sold $246 million of Intelsat stock in an alleged overnight ‘fire sale’ on November 5th 2019.

A Motion to Dismiss is scheduled for July 23rd and the two main defendants filed their Motions to Dismiss on June 14th.  Mr McGlade’s lawyers filed their Motion to Dismiss on March 31st.

The sale of shares (and described as “the quintessential insider trading case” by the Plaintiffs) was on and around the period that (then FCC Chairman) Ajit Pai told Intelsat senior staff that the FCC would back an auction of C-band frequencies handled by the FCC, and not to support the C-Band Alliance’s (CBA) preferred private method of an auction organised by the CBA.

Senator John Kennedy of Louisiana, no supporter of the C-Band Alliance’s plan to itself manage the sale of satellite spectrum, speaking at a Senate Appropriations Committee hearing on June 16th, 2020, said: “On November 5th, 2019, the CEO of Intelsat met with one of [the FCC’s] senior lawyers, [and] two of the biggest Intelsat shareholders sold $246 million of their own stock. Shortly thereafter, the FCC announced that it was going to conduct a public auction… and the price of Intelsat stock dropped more than 75% from like 25 bucks to six bucks…. Something happened in that meeting.”

On November 18th 2019, the FCC formally rejected Intelsat’s ‘private sale’ proposal.  Furthermore, FCC Chairman Pai appeared to foreclose any future prospects, wholly conveying his support for a public, rather than private auction of the C-Band spectrum. The market’s reaction to this news was quick and harsh – Intelsat’s stock fell over 40 per cent on extremely heavy trading, closing down from $13.41 per share on November 18th, 2019 to $8.03 per share.”  The Intelsat total share price collapse continued over the following few days declining 77 per cent in barely two weeks.

As was later revealed, however, certain insider shareholders were allegedly able to sell a large chunk of Intelsat shares (collectively 10 million shares) just before this massive stock plunge, and allegedly capitalising on their inside knowledge that Intelsat’s proposals were viewed negatively by the FCC.

The July 23rd Motions to Dismiss will see the Court hear submissions from all the parties, including McGlade.

BC Partners, in its Motion to Dismiss, argues that it has not broken any rules and not used non-public information. It states that meetings between the FCC and Intelsat (and the CBA) were “routine” and that the FCC was scrupulous that no material non-public information was disclosed at the November 5th meeting with Intelsat’s executives. The “plaintiff’s claims solely rely on a set of vague allegations from two confidential witnesses (“CWs”) who were not present at the Nov 5 meeting, who never communicated with BC Partners about it, and whose tales lack any indicia of personal knowledge or reliability,” says BC’s Motion.

McGlade’s defence is that he did not possess material non-public information and knew nothing of the key FCC meetings and in particular had no knowledge of the key November 5th meeting.

His lawyers argue that McGlade only sold a portion of his shareholding as he “tagged along” with the sale by Silver Lake and BC Partners. His lawyers state that at the time of the sale, McGlade held more than $80 million-worth in shares and that he joined the block sale (by Silver Lake and BC Partners) “because it permitted him to liquidate a small portion of his holdings while retaining the vast majority of his shares pending the FCC’s ultimate decision”.

McGlade’s defence statement continues saying that as a result in the near-total collapse of Intelsat’s share price he personally lost “well over $81 million”.  Under the terms of a Shareholders Agreement and its Tag-Along provision, he sold 14 per cent of his holdings and retained the 86 per cent balance. That remaining 86 per cent was eventually sold in the summer of 2020 for less than $600,000.

Judge White will determine whether the Action is dismissed or can go forward.

Other posts by Chris Forrester:

1. Collar departure: “Hard to see a positive read”
2. Dish, DirecTV keen to merge?
3. Boeing accused of technology theft
4. Analyst: Satellite DTD market worth billions
5. Bank: Rocket Lab value boosted by Virgin Orbit assets
6. Analyst: “TV Industry consolidation inevitable”
7. Intelsat: ‘Insider trading’ appeal lodged
8. ESA boss praises SpaceX
9. How Virgin Orbit lost a billion dollars

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Tags: FCC, Intelsat, SES