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October 06, 2006

MySpace Founder Accuses News Corporation of $20 Billion Fraud

posted by MR WAVETHEORY at 10/06/2006 01:46:00 AM
Brad Greenspan, the founder of MySpace.com, accused executives of Intermix Media of defrauding shareholders of $20 billion by selling to News Corporation (NYSE NWS) for too low of a purchase price. Brad accuses Richard Rosenblatt, then the CEO of MySpace.com, of hiding $250 million in revenues from shareholders prior to the closing of the deal. Specifically,
Rosenblatts scheme was helped in large part because Intermix hid Myspace revenue from shareholders in a blatant violation of FAS 131 (segment reporting disclosure). Shareholders were not aware that Myspaces revenue was growing at a 1200 percent annualized rate and increasing. Shareholders were forced to trust the recommendation of Intermixs Board and were under the impression Myspace was unable to turn its massive traffic into revenues.
Brad believes MySpace was well on its way of achieving $250 million in revenues in 2005 but Rosenblatt plotted with Ross Levinson of News Corporation to sell Intermix Media, which was the parent of MySpace, cheaply in return for a share of the $20 billion bounty.
Intermix board members and senior executives, led by Rosenblatt, blatantly deceived shareholders into voting for a quick sale to News Corp. in exchange for broad protection from a string of prior corporate misdeeds and Rosenblatts understanding that he would share in $20 billion in value post-transaction via his new role at News Corp.
This kind of corporate cloak and dagger is not unheard of, but it certainly is one of the most controversial statements that I have heard. I can understand why Brad is upset.

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.

If Rosenblatt did strike a secret deal with Fox, then I think this would effectively annull any secret payment that has yet to be paid. Who knows. Maybe the Fox people leaked this secret deal to Brad so they can still Rosenblatt. On other hand, I must add that Brad may be underestimating the role that Fox played in promoting MySpace into the number social networking brand.

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