Chief executive officer John Acunto told about 700 of the roughly 1,500 shareholders, including staff and former staff, that the mystery punter who was supposed to lob in $3.36 billion at a $12 billion valuation had apparently vanished into the ether.
An email to investors soon after said some holders would get a bigger slice of the business because the phantom investor’s shares were being cancelled. It described Napster as a “victim of misconduct” and claimed it was “assisting law enforcement with their ongoing investigations”.
The promised tender offer, which was supposed to let investors finally cash out, was binned as well. “Since that investor was also behind the potential tender, we also no longer believe that will occur,” the company wrote.
Nothing about this seemed likely to cheer up investors who had already spent nearly a year being promised imminent cash infusions that never arrived. It was the fourth time since 2022 that Napster dangled the prospect of a tender offer, and the fourth time the supposed deal crumbled.
Napster spokesperson Gillian Sheldon said certain statements about the fundraising “were made in good faith based on what we understood at the time. We have since uncovered indications of misconduct that suggest the information provided to us then was not accurate.”
America’s Department of Justice has opened an investigation in which Napster is not a target, while the Securities and Exchange Commission is still poking around a reverse merger Napster abandoned in 2022.
Napster’s earlier claims that Infinite Reality acquired it for $207 million have aged poorly. Forbes reported that creditors have sued Infinite Reality over unpaid bills and have had to deal with a federal action stemming from an SEC subpoena, which was later dismissed.
The outfit also touted partnerships with Manchester City Football Club and Google that appear to be puffery. It even boasted of “top-tier” investors who never put in a penny and an anonymous $3 billion investment, its spokesperson insisted was “in an Infinite Reality account and is available to us” and that they were “actively leveraging”.
By this stage, Napster looked as if it was scrabbling for cash to keep the lights burning, relying on brokers and investment advisers who had already tangled with regulators.
If it turns out Napster knew the fantasy fundraising was fiction and still benefited from spinning yarns to investors or would-be acquirers, it might have to answer questions about something much nastier, because that sort of behaviour fits the definition of securities fraud.