MySpace acquisition a $20 billion fraud?

Brad Greenspan, one of the original founders of the MySpace universe, published a report that claims that News Corp.'s 2005 acquisition of MySpace may have defrauded shareholders by "more than $20 billion." Greenspan has requested further investigation by the Securities and Exchange Commission, the U.S. Department of Justice and the U.S. Senate Committee on Finance.

Greenspan claims that records he obtained indicate "one of the largest merger and acquisition scandals in U.S. history." According to the former chairman and chief executive officer of Intermix Media, which invested $1 million into the creation of MySpace, shareholders "were blatantly misled into voting for a quick and unfair sale" and "deliberate steps were taken to withhold and manipulate information." He also claims that money was improperly gained and laws were broken.

Greenspan hopes that MySpace's $580 million acquisition by News Corp. in July 2005 will be "unwound" and MySpace will be independent. "An independent MySpace is significantly better for its users and shareholders," he said. The report, freely available at freemyspace.com, lists several quotes - which Greenspan says are taken from email conversations between the parties involved in the acquisition: If authentic, the emails could provide some evidence that the negotiating individuals were aware of a much higher value of MySpace, and profited from the deal later on.

A key accusation of Greenspan is that Intermix and News Corp. withheld information about the revenue of MySpace, which grew "at a 1200% annualized rate" and was on track hitting $250 million for the year. "Shareholders were forced to trust the recommendation of Intermix' Board and were under the impression MySpace was unable to turn its massive traffic into revenues," Greenspan writes.

So how does Greenspan fit into this picture?

Greenspan, who founded eUniverse, claims to have had the idea for MySpace and is believed to have spent about $1 billion to get MySpace with his firm off the ground back in 2003. Other key people involved in the founding included by Tom Anderson and Chris DeWolfe, the current chief executive of MySpace. After arguments - which included accounting issues - with board members, Greenspan was forced to the leave the company, which changed its name to Intermix Media after his departure. Greenspan tried at least twice to claim back his company in proxy proceedings, which, however, were unsuccessful. Greenspan ended up with a $47 million check from the News Corp. acquisition of Intermix.

His claim that MySpace was worth substantially more than the $580 million News Corp. paid, could either increase his check or hand him back a social networking site that currently has more than 110 million members, a $900 million Google advertising deal as well as recently announced music distribution agreements for its members.

Greenspan now aims his accusations at Richard Rosenblatt, who took over at eUniverse and Intermix as CEO after Greenspan's departure. "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," Greenspan said. "The MySpace Report" shows that Richard Rosenblatt knew before the transaction that MySpace was well on its way to becoming worth at least $20 billion."

MySpace did not comment on Greenspan's accusations.