MUMBAI: Brad Greenspan, who is one of the founders of the social networking site Myspace.com, has issued an online report at Freemyspace.com that details how Intermix Media’s sale of Myspace intentionally defrauded shareholders out of tens of millions of dollars.
Saying that it is “one of the largest merger and acquisition scandals in US history,” Greenspan is calling for further investigation by the Securities and Exchange Commission, the United States Department of Justice and the United States Senate Committee on Finance. Greenspan served as chairman and CEO when Myspace was created by Intermix.
News Corp had bought MySpace for $580 million last year. Analysts feel that the site could be worth several billion dollars in the next few years. Greenpan, who is Intermix’s largest individual shareholder says, “The answer to how News Corp. was fortunate enough to buy one of the largest and most valuable Internet companies for pennies on the dollar is now clear.
“I expect as the authorities get their arms around what happened, that this transaction will be unwound and Myspace will be independent. An independent Myspace is significantly better for its users and shareholders.
“For the first time the public can read what took place behind the scenes and how shareholders were blatantly misled into voting for a quick and unfair sale to News Corp. Deliberate steps were taken to withhold and manipulate information; money was improperly gained and laws were broken. It is my hope that regulatory bodies will begin their investigations quickly before evidence is destroyed.”
Greenspan utilised a variety of sources for The Myspace Report, including the two highest non-director senior executives at Intermix, chief financial officer Lisa Terrill and chief operating officer Sherm Atkinson, financial analysts, and Kroll a golden risk consulting company.
The report shows that Intermix CEO Richard Rosenblatt knew before the transaction that Myspace was well on its way to becoming worth at least $20 billion.
“In addition to Rosenblatt’s stunning and incriminating emails, the two highest non-director senior executives, chief financial officer Lisa Terrill and chief operating officer Sherm Atkinson, have come forward through their legal counsel indicating significant breaches of fiduciary duty by Rosenblatt and the directors as part of the News Corp. transaction,” continued Greenspan.
The report concludes that certain 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 Rosenblatt’s understanding that he would share in $20 billion in value post-transaction via his new role at News Corp.
Rosenblatt’s scheme was helped in large part because Intermix hid Myspace revenue from shareholders in a blatent violation of FAS 131 (segment reporting disclosure). Greenspan says shareholders were not aware that Myspace’s revenue was growing at a 1,200 per cent annualised rate and increasing. Shareholder’s were forced to trust the recommendation of Intermix’s Board and were under the impression Myspace was unable to turn its massive traffic into revenues.
“A public company that refuses to tell shareholders the revenue of its most valuable asset flies in the face of what it means to be a public company” said Greenspan
Six months after the deal closed, News Corp. disclosed to analysts that Myspace was tracking at $250 million in revenue in 2006 and announced an advertising deal for MySpace with Google for $900 million dollars. Peter Chernin of News Corp. was quoted by the Financial Times on 7 August, 2006: “In one fell swoop we have paid off two-thirds of our Internet investments. We have gotten a 70 per cent premium on our Myspace investment and are now playing with house money.”
Says Greenspan, “If Intermix had abided by FAS 131, shareholders would have been able to track the revenue and growth of Myspace and known the property was on pace to hit the eye popping numbers we are now seeing. Myspace didn’t magically start generating revenue after the News Corp. transaction, its revenue and growth were tracking to reach $250 million before the acquisition.”
In May 2005 Deutsche Bank outlined for Intermix executives that taking Myspace public could provide value in the $1.028 – $1.7 billion range. Greenspan alleges that Rosenblatt knew that Myspace was on track to become a $20 billion property and purposely withheld this information from shareholders to accelerate the transaction as well as 60 per cent of his stock options at closing for a personal gain of $20 million.
“News Corp’s valuation has increased by $12 billion since the transaction occurred just one year ago, and there are several independent analysts today that agree that Myspace is worth tens of billions of dollars. It is time everyone knew the truth about the ‘hijacking’ of Myspace and the individuals responsible for this eye popping theft,” concludes Greenspan.
