MySpace Founder Seeks Inquiry
For a guy who walked away from MySpace with $47 million, Brad Greenspan shouldn’t have anything to be angry about.
But the founder of the Los Angeles company that created the popular social networking site Thursday railed against his former firm and demanded a federal investigation of News Corp.’s 2005 acquisition of MySpace, calling it “one of the largest merger and acquisition scandals in U.S. history.”
Greenspan, who was ousted from Intermix Media in 2003, alleged that News Corp. “bilked” shareholders out of tens of billions of dollars and said the Securities and Exchange Commission, the Justice Department and Senate should investigate the $580-million deal.
The 33-year-old entrepreneur leveled allegations of insider trading and options manipulation on the website FreeMySpace.com, where he quotes e-mail exchanges that purport to show how Intermix engineered a quick sale to News Corp.
“It wasn’t about what’s the best deal,” Greenspan said. “It was about getting the deal done at any cost and jamming it home. That’s just not a fair way to play.”
Greenspan’s complaints amplify the claims he made in a February lawsuit filed against Intermix and VantagePoint Venture Partners in Los Angeles County Superior Court. The complaint claims that News Corp. acquired Intermix as the result of an unfair process and at an unfair price that did not reflect its growth and prospects.
MySpace is by far the most used social networking site, populated by more than 50 million people who created Web pages about themselves. But Rupert Murdoch’s News Corp. raised eyebrows with what many critics said was an overly generous offer.
The deal came loaded with baggage -- including concerns about sexual predators stalking children on the social networking site and Intermix’s history of installing spyware on home computers.
“It’s unfortunate that Mr. Greenspan continues to issue press releases complaining about a deal that many industry experts initially believed was a risk for News Corp. to take,” said Julie Henderson, a spokeswoman for Fox Interactive Media. “We’ve strategically built this business since the acquisition and are just now beginning to realize real financial value. This is simply a case of sour grapes making for loud complaints.”
News Corp. has worked for a year to profit on MySpace’s traffic without alienating its youthful audience. A deal worth at least $900 million makes Google Inc. the exclusive provider of search and keyword advertising for Fox Interactive sites, including MySpace.
A report from RBC Capital Markets analyst Jordan Rohan last week predicted that the social networking site could be worth $15 billion to $20 billion within a few years, based on its unprecedented usage growth, international appeal, scale and management team.
Greenspan claims that Intermix’s executives failed to tell shareholders how MySpace’s ad impressions and revenue were climbing, growing 35% month over month. Nor did they seek a fresh valuation to reflect this double-digit growth, he said.
Greenspan said the only ones with knowledge of MySpace’s breakneck growth were the News Corp. executives with whom Intermix’s chief executive, Richard Rosenblatt, communicated via e-mail, including one message sent just before noon on July 13, in which he wrote, “I am looking forward to supporting the 20 [billion] dream!”
The company was founded by Greenspan in 1999 under the name EUniverse Inc. It began selling music CDs online but quickly shifted strategies and began running entertainment and game sites, the most popular of which is Grab.com.
Greenspan, then chairman, was ousted during a bruising proxy battle after the company was forced to restate two years of earnings results and Nasdaq suspended trading of its stock. He retained an approximately 10% share in the company.
New York Atty. Gen. Eliot Spitzer began investigating Intermix in fall 2004 for allegedly distributing spyware to unsuspecting users.
In June 2005, the company agreed to pay $7.5 million over three years to settle a lawsuit brought by Spitzer. Greenspan paid $750,000 for his portion of the settlement.
