Massive Napster fraud | Matt Connnarton Unleashed

0:00 Right now, I do want to look at this. This is from Music Businessworldwide dot Com, one of my favorite websites for music industry news, which we do a lot of here on the show. But this story caught my eye, not only because it's some very interesting music industry news and the base of the story is interesting for a couple of reasons, but it's also one of these things where you go, why would anyone try to do this and think that they can get away with it? Yes, this story does involve a fraud and much of fraud.

0:32 It's like, why does why does anyone think that they're going to get away with this? It's like bank robberies. You know, you ever you ever hear or see a news story about a bank robbery in twenty twenty six, and you think, why does anyone think that they can rob a bank and they're going to somehow get away with it. It's not going to happen. You're not gonna get away with robbing a bank. So this is one of those things you ready for. This Napster's three billion dollar investor charged with fraud, as US authorities say the money never existed.

1:06 Oops, somebody thought they were gonna get away with it. I guess I don't know. I don't know what they were trying to do. Let's look at this and again, this is from Music Businessworldwide dot Com says here, US authorities have charged a North Carolina man with fraud, alleging that he used forged bank records in a fake banking website to obtain hundreds of millions of shares in napster owner infinite Infinite Reality without paying a cent. An indictment unsealed on Thursday, June eleven, charges that Charles Cole of Mooresville, North Carolina, with wire fraud, conspiracy to commit wire fraud, and conspiracy to commit securities fraud.

1:52 That's a lot of fraud. He also faces a parallel civil complaint from the US Securities in Extreme Commission the sec which charges him alongside his lawyer, Utah attorney Torbin Welch, with and three entities he controlled. Okay, so that's where the conspiracy part of the fraud comes in. The fraud part is clear. Now we also know where the conspiracy is. The case centers on Infinite Reality, the Florida based technology company that acquired Knapster in twenty twenty five and later took on its name in mid twenty twenty four.

2:26 The company was seeking to raise around three hundred and fifty million dollars, and a broker introduced it to Coal as someone who could help facilitate the investment. The indictment states Cole first proposed handing over a one billion dollar bond in exchange for three hundred and fifty million dollars of stock, but his attempts to monetize it failed. He then told the company he wanted to buy billions of dollars worth of shares directly submitting documents if falsely claimed a fifty million dollar annual income and an eight hundred million dollars net worth.

3:01 Prosecutors allege, again, there's more to this, but again I just whenever I see something or hear something like this, it's like, how did this person think they were going to get away with this? Cole and Welch falsely told Infinite Reality that Coal or AVNOK controlled at least fifty five billion dollars in assets. The SEC alleges when payments failed to arrive, Cole allegedly told Infinite Reality that he held billions of dollars at a second bank, this one in Malaysia, and that he had opened an account there in the company's name.

3:39 One fabricated letter claimed Cole was quote ready, willing and able to fully fund the transfer of how do I even read this three billion, three hundred and sixty million dollars. According to the indictment, the account, however, was a fiction. Coal and a co conspirator had a step. By the way, what's the point of the word co conspirator? Can't you just say conspirator? A conspiracy has to have more than one person, So why do we need co conspirator? Why can't we just say conspirator? What's the difference?

4:19 Sorry, longtime listeners know, I get fixated on things like that. Cole and a co conspirator had established offshore servers hosting a fake website that mirrored the real banks site, allowing users to quote log in to fabricated accounts. The indictment states Cole repeatedly asked a Cone a co conspirator, whether the server hosting the mirror was up and running so that we can add an account and go live. According to the indictment, Infinite Reality executives received a fake welcome email, logged in and saw what looked like a funded account.

5:01 Prosecutors allege, in all infinite reality, issued Cole and his entities at least two hundred and thirty nine million shares. The indictment states. Jake Clayton, US attorney, said, quote, as alleged, Charles Cole built a fiction of wealth using fake bank records, sham correspondence in a fraudulent bank website, then use that fiction to obtain hundreds of millions of shares with no intention of paying for them unquote. He also said, quote, fraud is flaw. A fraud is flaw, a fraud, whether in our public markets or our private markets unquote.

5:38 By the way, I assume he's saying that, because I mean, and that should be obvious. Frauds fraud. But you know there are people and I'm not someone who does this, but there are people who will take the perspective of and you see this more and more of well, it's just somebody stealing from a big company, so that that makes it okay. People will kind of justify that, that makes it okay if you're ripping off a big company, you're ripping off a corporation who cares. But again, fraud is fraud, and that might be a good thing to remind people like this guy, Charles Cole, who again, how did he think that he wasn't going to get caught?

6:20 Kenny on's an unusual name, Kenny larco Ward, the inspector in charge of the New York Field Office of the US Postal Inspection Service said, quote, mister Cole allegedly defrauded an unsuspecting company through a series of lies and misrepresentations. Unquote. It says here Cole never invested any money and instead used the shares as collateral to borrow from lenders. The indictment states, in May twenty twenty five, a US lender loaned one million dollars against nearly forty five million of the shares, with the proceeds passing through an account held by Cole's then attorney before rough two hundred and eighty thousand was withdrawn.

7:03 The SEC identifies that attorney as Welch In alleges that he secured the loan by providing forged documents to verify Cole's wealth and giving the lender false assurances. Cole later like, what's the point of all? Like is it just again? I know I'm editorializing a lot here, but I just I wonder about this. Are these people just crazy? These conspirators, They couldn't, Like, no rational human being could possibly think that they're going to get away with this. Anything that you do leaves a digital footprint, leaves breadcrumbs.

7:37 You can't possibly get away with anything like this. You can't. And I'm sure somewhere there's a story of someone who pulled off a grandiose scheme like this and got away with it. Okay, but the odds are so incredibly low. I mean, how did these people think they had a shot at getting away with this? They have to be insane. These are not mentally well people to even attempt this scheme, in my opinion, it says here and again this is from a music businessworldwide dot com. Cole later tried to acquire still more shares through a tender offer, fabricating a screenshot of an eleven billion dollar balance and an account that did not exist.

8:26 Prosecutors alleged Cole even directed a co conspirator to fix mismatched formatting on the forged statements so they would match all the others. According to the indictment, the scheme unraveled in March twenty twenty six, when Infinite Reality rescinded all the shares it had issued to Coal and his entities. As Music Business Worldwide reported in March twenty twenty five, Infinite Reality acquired Napster in a two hundred and seven million dollar deal. Weeks after announcing what it described as a three billion dollar funding from an unnamed private investor.

9:03 The money never arrived, and prosecutors now led to the investor behind it, Cole never had the funds he promised. Napster launched in nineteen ninety nine as a file sharing service before being shut down following a wave of copyright lawsuits, and the brand has changed hands repeatedly as a licensed streaming service. And by the way, Napster again. When we talk about, you know, the changes and the music industry and everything. Right now, the big change is AI. AI is causing a lot of upheople in the music industry.

9:34 But back then, in nineteen ninety nine into the early two thousands, it was Napster. I was working for Transworld Entertainment at the time. I was a store manager. Trans World owned at that time Strawberries, which eventually got bought. Well actually this was before trans World owned it Strawberries was a separate company, but anyway, it was a music store, so we sold CDs and Jesus at that time, we saw at cassette tapes, but we were mostly selling CDs, so we were selling music. So when Napster showed up, like there was and this is not hyperbolic, this is absolute fact, there was what could only be described as panic in the industry, both on the retail side of it and all throughout the music industry.

10:17 There was panic because it was like Napster comes along, and you can and it was the harbinger of what we have now. But you know, they the music industry really had to adapt here, and it took a long time, but there was panic. Napster comes along, and I remember having conversations with people about this where I said, you know, so I guess music is just free now music is free, so this changes everything and there was absolute panic, all right. So that was my little Napster sidebar, it says here. In twenty eleven, it merged with the subscription platform Rhapsody and operated under the Rhapsody name in the US until rebranding re rebranding to Napster again in twenty sixteen.

11:00 It was sold to virtual reality company Melody VR in a seven million dollars deal in twenty twenty, then to hive Mind Capital Partners and cryptocurrency firm Algorand in twenty twenty two, before the Infinite Reality acquisition in twenty twenty five. The case has been assigned to US District Court Judge Vernon S. Broderick, with Coal presented in the Western District of North Carolina on Thursday. The wire fraud and wire fraud conspiracy counts each carry a maximum sentence of twenty years in prison, while the securities fraud conspiracy counts carry a maximum of five years.

11:35 The DOJ said. The full indictment also seeks the forfeiture of any proceeds Coal made from the alleged scheme. The charges are allegations, and Cole is presented innocent is I'm sorry, presumed innocent until and unless proven guilty. So there you go. But again, like, how does somebody do this and think that they have any shot of getting away with it? It's it's truly, truly remarkable.