Napster Corporation disclosed to shareholders last week that a previously announced $3 billion funding round no longer exists, attributing the situation to misconduct, according to an email to shareholders obtained by Forbes.
CEO John Acunto told approximately 700 shareholders, employees, and investors during a November 20 online meeting that the mystery investor, whom company officials said provided the $3.36 billion in funding at a $12 billion valuation, would not be delivering the money, according to Forbes, which first reported the developments. The investment would have ranked among the year’s largest funding rounds.
In an email sent to shareholders shortly after the meeting, the company described itself as a victim of misconduct and said it is assisting law enforcement with ongoing investigations. The Securities and Exchange Commission and Department of Justice are examining the situation.
The company also canceled a promised tender offer that would have allowed shareholders to cash out their stakes. Company officials told some shareholders they could sell shares at $20 each by May, which would have valued the firm at $18 billion. It was the fourth time since 2022 that a promised tender offer fell through.
Napster spokesperson Gillian Sheldon said the company made statements about the fundraise in good faith based on what officials understood at the time. Sheldon said the subsequent investigation revealed signs of misconduct, indicating they had received inaccurate information. She declined to provide further details, citing the ongoing investigations.
This is the latest legal trouble for the company. Sony Music filed a lawsuit in August alleging $9.2 million in unpaid royalties from the music streaming subsidiary. In June, the original owners of virtual reality company Obsees filed suit claiming Napster still owed them $22 million from an acquisition. The company conducted layoffs affecting approximately 100 employees in July.
Chief legal officer Jennifer Pepin and chief financial officer Brian Effrain departed in September. Former CEO Jon Vlassopulos, who led Napster at the time of its acquisition, stepped down in May.
Forbes started raising questions about the financing in January, shortly after the company announced the deal. In an April press release, the company attempted to field the questions by identifying an entity — but not the investor themself. It said that “Sterling Select, a venture development firm associated with Sterling Equities and the Katz family, represents the investor who made the significant $3 billion investment that the company announced earlier this year.”
Napster Corporation, formerly Infinite Reality, acquired the music streaming service for $207 million in March and completed its rebrand in May. The company has shifted focus from music streaming to artificial intelligence, launching Napster AI and Napster Spaces, which creates interactive websites powered by AI avatars.
The original Napster pioneered peer-to-peer music file sharing in 1999 before being shut down amid copyright lawsuits in 2001. The brand has changed ownership multiple times since its bankruptcy in 2002.
Napster Corporation operates as a private company and faces no requirement to file public disclosures with the SEC about the matter.
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