DISH DBS holders have filed a lawsuit in the Supreme Court of the State of New York, alleging that EchoStar fraudulently transferred assets out of the reach of bondholders “in exchange for nothing,” according to court documents.

Trustee US Bank filed the lawsuit at the direction of holders of the majority of DISH DBS  5.75% senior secured notes due 2028 and the 7.75% senior secured notes due 2026.

Milbank Tweed attorneys Andrew Leblanc and Dennis Dunne represent the bondholders and US Bank as trustee along with Samir L Vora. Debtwire was first to report that Milbank was hired by an ad-hoc group of holders this January. The holders coalesced to push back against a deal put forward by Charlie Ergen’s EchoStar that moved away assets and wireless spectrum held at DISH Networks and its satellite TV subsidiary DISH DBS into new unrestricted subsidiaries.

Subsequently, DISH parent EchoStar launched a series of distressed exchange offers to allow four tranches of DBS unsecured notes due between 2024 and 2029 to exchange into new 10% senior secured notes due 2034 backed by assets EchoStar moved away from DBS into an unrestricted subsidiary, as reported. Holders did not consent to the deal and the exchange was terminated.

“Through a brazen series of related transactions, EchoStar Corporation transferred billions of dollars of assets from DISH Network Corporation and its subsidiary, DBS, out of the reach of existing creditors, in exchange for nothing,” lawyers from Milbank alleged in the complaint, noting that DBS bondholders were subsequently offered “the stolen property back” at steep discounts. The lawsuit aims to recover those assets.

“The scheme was concocted to attempt to protect EchoStar’s controlling shareholder, Charles Ergen, in the event defendants cannot manage their upcoming debt maturities and need to reorganize. The risk is real — EchoStar’s, DISH Network’s, and DBS’s auditors issued going concern qualifications, highlighting the uncertainty around the defendants’ financial condition,” the complaint notes.

Lawyers at Milbank allege that Charlie Ergen concocted “the scheme” around the time when EchoStar’s amended the terms of its merger with DISH Network, causing DISH Network to be a subsidiary of EchoStar.

“Just a few days after the amended merger closed, EchoStar ransacked its new subsidiary: EchoStar caused DISH Network to transfer spectrum licenses — a portion of which EchoStar valued at USD 9bn — to a direct, wholly owned subsidiary of EchoStar, rerouted a USD 4.7bn of intercompany loans from DBS to a direct, wholly owned subsidiary of EchoStar, and siphoned three million DISH TV subscriber contracts from DBS and handed them over to a newly created subsidiary,” court documents show.

EchoStar paid DBS and DISH Network “not one dollar” for the transferred assets, the complaint concludes.

No response has been yet filed by EchoStar in conjunction with the lawsuit.