U.S. Private Equity Firm Suing Industry Canada for $1.2B Over Mobilicity

A private U.S. equity firm is suing Industry Canada for $1.2 billion in damages related to negligence, breach of contract, abuse of public office, unjust enrichment,  loss of reputation and goodwill over struggling wireless startup Mobilicity. According to the Globe and Mail:

U.S.-based fund Quadrangle Group LLC is suing Industry Canada for $1.2-billion for damages related to equity investments worth hundreds of millions of dollars it made in struggling wireless player Mobilicity.

Quadrangle, one of the original equity investors in the startup, said on Friday that it invested the huge sums in Mobilicity “on the basis of Industry Canada’s assurances.”

Quadrangle Group says its investment helped build Mobilicity’s network and created thousands of jobs, but the government “breached its assurances that it would enforce foreign-ownership rules, require incumbent carriers to provide roaming and access to cell towers at reasonable rates and terms, prevent unfair and anti-competitive competitive practices and allow spectrum to be transferred.”

Canadian businessman John Bitove, who helped develop Sirius XM Canada satellite radio, claims Industry Canada approached him in 2006 to invest in a new wireless startup.

Bitove invested $40 million through his company Data & Audio-Visual Enterprises Investments Inc. (DAVE), while Quadrangle added $217 million in equity and later $95 million in debt financing. Both companies spent $243 million for AWS spectrum licenses in the 2008 auction in Ontario, BC and Alberta.

Industry Canada blocked the sale of Mobilicity to TELUS three times, which the lawsuit alleges the government said it would allow the transfer of spectrum licenses to the Big 3 once the five year moratorium on license transfers had expired.

“Having caused the plaintiffs to lose substantially all of their investment, Industry Canada broke its final promise by refusing to allow the sale of the business after five years,”

Canaccord Genuity analyst Dvai Ghose said this new lawsuit will make investors contemplating Canada to think twice:

“In particular, we wonder why any financial or strategic investor would be interested in being a wireless new entrant without any obvious exit strategy.”

Mobilicity is currently under creditor protection, which was recently extended by an Ontario Superior Court of Justice until September 26. It’s not looking pretty right now for Mobilicity, but their plans sure are cheap.