MySpace Founder Alleges News Corp. Merger Defrauded Investors Out Of Billions

Brad Greenspan, a founder of Intermix Media, the company which created Myspace, alleges in a massive report published on the Web today that the sale of the company to News Corp. (NWS) “intentionally defrauded shareholders out of tens of billions of dollars.” Greenspan describes the sale as “one of the largest merger and acquisition scandals in U.S. history.”

(When you go to the Web site, you see a press release; if you want to read more, scroll down past the release and read the first chapter of his report…and then if you are glutton, chapters 2 through 9.)

This is a hugely complicated story, and Greenspan has an obvious axe to grind - he clearly thinks he should be a Myspace billionaire. Greenspan explains in the report that he was founder, CEO and Chairman of eUniverse, the original name of Intermix. At one point, he owned 30% of the company, which of course owned 100% of Myspace, which now is widely considered to be worth a fortune - maybe as much as $10 billion or $20 billion. Ergo, Greenspan obviously is thinking he should have been on the road to the Forbes 400 by now. Greenspan, though, says he was pushed out as CEO in 2003, after a dispute involving the price to be paid for shares in the company by the venture capital firm VantagePoint Venture Partners. In his report, Greenspan writes:

Within days of refusing to give VantagePoint what they wanted, I was pushed out of eUniverse as I became the victim of a VantagePoint induced coup in which VantagePoint bribed two senior officers…with approximately $5 million dollars in new compensation to commit a series of frauds against the public sharehodlers, ultimately giving VantagePoint control of Intermix…from that point up until the sale of Intermix/Myspace, VantagePoint, and the board including [Intermix CEO Richard] Rosenblatt, ran off a string of misdeeds which put millions of dollars in their pockets at the expense of shareholders.

Interesting to recall that not long before he stepped down from his post at the company, eUniverse shares were halted for four months, as the company struggled with the restatement of past financial reports. Also note that Greenspan has been complaining about the circumstances of his exit from eUniverse almost from the day he left, as this News.com story on his 2003 resignation from the eUniverse board notes.

Last month, Valleywag published a huge post on the saga, written by a college student named Trent Lapinski. That story, which mostly focused on the company’s early history as an aggressive spammer, noted, among other things, that Greenspan had filed suit over the MySpace deal back in February.

Greenspan has some ambitious goals with his lawsuit and the follow-up report:

● Unwind the News Corp. transactions, restoring MySpace as an independent online network owned by the public with no individual shareholder or company owning more than 50 percent. This would be a significant improvement for Myspace users and the entire company. There are reasons the FCC and other government agencies have rules about one media company owning too large of a share of the U.S. broadcasting platforms/networks.

● Make whole the Intermix shareholders that were misled and defrauded by Rosenblatt and other involved parties actions.

Greenspan may very well be right. Or not. The Street seems not to be taking him too seriously. News Corp. shares yeserday were up 8 cents at $20.61.

NWS 1-yr chart:

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Comments

[Mr WaveTheory:]

Most venture capitalists, including those at Redpoint and Vantagepoint Venture Partners, would probably agree with that they sold MySpace too early. However, you can't blame them. After 4 years of lackluster returns (no exits in fact) from their portfolios, Redpoint and VantagePoint were probably ecstatic to show any exit to their limited partners. VCs have bosses too! They are public pension funds and corporate investment funds that rely on these investments to pay for your retirement. <strong>MySpace ...</strong>

2006 Oct 06 03:09 PM

[Christopher...:]

Of course they screwed over the guy. That's how VCs extract value - replace the mgmt. The list of screwed over entrepreneurs is huge. Just ask the founders of Cisco.

2006 Oct 08 04:10 PM