Brief History of TerreStar’s Share Price Tumble

On November 27, 2001, TerreStar announced that it had received approval to spin off a joint satellite communications company, Mobile Satellite Ventures (MSV). Less than two months later, in January of 2002, TerreStar filed for Chapter 11 bankruptcy protection. By May 1, 2002, the Company had emerged from bankruptcy, and its shares resumed trading on May 9, 2002, at an opening price of $4.50 per share. The share price reached its all-time post-bankruptcy low closing price on October 8, 2002, at $0.659 per share before steadily rising over the next few years to its all-time high price in early 2005.

On February 28, 2005, the FCC approved hybrid terrestrial and satellite systems, commonly referred to as “MSS/ATC” (“Mobile Satellite System / Ancillary Terrestrial Component”), which enabled the combination of satellite ubiquity and terrestrial efficiency . This fundamental change in the FCC license was one in a series of events that made TSTR/MSV-owned technology increasingly more valuable. According to the Wall Street Journal, The FCC decision gave TSTR and MSV the ability to use previously MSS-only spectrum for more than just satellite communication without requiring the companies to take part in a traditional spectrum auction for such rights. (Source for FCC MSS clarification)

TerreStar and certain of its advisors apparently took advantage of the positive impact resulting from the FCC’s action to enter into a transaction with Dr. Raj Singh. Less than twenty days earlier, on February 9, 2005, TerreStar closed a transaction that monetized Dr. Raj Singh’s relatively illiquid investment in MSV by swapping his MSV units for approximately 8.2 million shares of TerreStar’s stock. As a result, TerreStar increased its ownership of MSV by approximately 5.9%, leaving the Company with approximately 44.5% interest in MSV. (Source for preceding paragraph: Business Wire Press Release)

In the press release announcing the transaction, TerreStar claimed that part of the transaction’s value would come from the Company’s “association with Dr. Singh, both as a large shareholder and potential informal advisor.” Then-TerreStar chairman Steven Singer is quoted as saying, “We are delighted not only to increase our stake in a company in whose prospects we deeply believe, but to welcome Dr. Singh as a major shareholder of Motient.” (Source for preceding paragraph: Business Wire Press Release)

TerreStar shares experienced a significant short-term rally during this period. On January 11, 2005, the day the proposed transaction was announced, the share price closed at $23.20; a month later, on February 11, shares of TerreStar closed at an all-time high closing price of $31.45 per share. However, shortly thereafter, the rally came to “a mysterious end” as detailed in a December 2005 article from Business Week entitled “Motient Sickness”.

The closing price of TerreStar hit an all-time high of $31.45 per share two days after Dr. Raj Singh’s stock swap; and soon thereafter, despite Singer’s sentiments quoted above, Dr. Raj Singh began selling millions of his TerreStar shares. (Source for preceding sentence: Filing at secinfo.com.) Between February 11, 2005, and June 30, 2006, the stock price of TerreStar fell more than 50% from $31.45 to $14.15.

As of September 16, 2008, shares of TerreStar had fallen over 90% from their all-time high to close at $2.20. What caused TerreStar’s stock price to tumble more than 90% in a little over two years? Moreover, how could this drop occur when the Company at one time held a 44.5% interest in MSV, which was reported in February 2006 by the Wall Street Journal to have a value potentially as high as $2 billion? And why would Dr. Raj Singh, a developer and patent holder of wireless mobile communication technologies, begin selling his TerreStar shares soon after receiving them, especially when he was then extolling the virtues of MSV and MSS/ATC in a November 2005 preface for a paper entitled “An ATC Primer”?

Answering these questions begins with an understanding of how TerreStar apparently fits into an intertwined group of individuals and companies. The list of companies includes, but is not limited to: Communications Technology Advisors (CTA), Tejas & SkyTerra Communications, RCN, First Avenue Networks (now FiberTower), Allegiance Telecom, Globix and Neon.

The most prominent members of this management web are brothers Gary and Steven Singer and their longtime business associate Jared “Jerry” Abbruzzese, two of whom came to TerreStar with a questionable corporate history.

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