When Rdio filed for bankruptcy protection while selling key assets to Pandora, it was a big story for the digital-music world.
Now it’s sparking a big fraud lawsuit, with Sony Music taking three of Rdio’s former executives to court over money owed to the major label at the time of the changes.
Former CEO Anthony Bay, general counsel Elliott Peters and content licensing boss Jim Rondinelli are the executives targeted by the lawsuit, which was filed in New York and first reported on by The Hollywood Reporter overnight.
The lawsuit focuses on two payment agreements: a $5.5m minimum-revenue guarantee that Rdio owed to Sony at the end of 2014 but which was deferred; and a $2m payment due on 1 October 2015 as part of Rdio’s license renewal with Sony.
“Unbeknownst to SME, however, at the same time that Rdio was negotiating the amendment to its Content Agreement with SME, it was simultaneously negotiating its deal with Pandora — under which Rdio would file for bankruptcy,” claims the lawsuit.
“Pandora would buy Rdio’s assets out of bankruptcy; defendant Bay (as part-owner, executive officer, and director of Rdio’s secured creditor) would expect to be first in line to receive proceeds of the Pandora deal; and SME (as an unsecured creditor) would receive pennies on the dollar for the amounts owed to it under the amended Content Agreement.”
The lawsuit further alleges that Rdio’s executives concealed their Pandora plans from Sony Music by telling the major label that they were raising capital rather than preparing to file for bankruptcy.
“It would be against equity and good conscience to permit Defendants to retain any benefits that they obtained as a result of their fraudulent conduct,” claims the lawsuit. The defendants have yet to comment publicly in response.
Public documents from the bankruptcy process last year revealed that Rdio had $190m of secured debt plus $30m of unsecured debt at the time.
In the latter, Sony Music was the second biggest creditor with $2.4m owed, behind only Roku ($2.8m) but ahead of AXS Digital ($1.3m), Shazam ($1.2m), Warner Music ($613k) and Universal Music ($294k). Sony’s The Orchard subsidiary was listed as a separate creditor with $384k owing.
At the time of its bankruptcy, Rdio was making around $1.5m a month from subscriptions, but spending $4m in monthly operating expenses.
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