Napster Creditors Sue Bertelsmann

Napster Inc.’s unsecured creditors sued German media powerhouse Bertelsmann, alleging that it mischaracterized its equity investments in the defunct music-swapping site as loans.

The lawsuit, filed Friday in U.S. Bankruptcy Court in Delaware, also says Bertelsmann’s claims shouldn’t be given priority over other creditors. Redwood City, Calif.-based Napster filed for bankruptcy protection in June.A bankruptcy judge blocked Napster’s sale to Bertelsmann on Sept. 3 after ruling that conflicts of interest by Napster chief executive had tainted the transaction.

The suit says the designation of Bertelsmann’s investments as loans was fiction and “there was never any expectation that these moneys would be repaid.”

Bertelsmann spokeswoman Paula Batson said the company has no comment.