Massive Napster fraud | Matt Connnarton Unleashed

0:00 Speaker 1: Right now, I do want to look at this. This

0:01 Speaker 1: is from Music Businessworldwide dot Com, one of my favorite

0:06 Speaker 1: websites for music industry news, which we do a lot

0:08 Speaker 1: of here on the show. But this story caught my eye,

0:11 Speaker 1: not only because it's some very interesting music industry news

0:15 Speaker 1: and the base of the story is interesting for a

0:18 Speaker 1: couple of reasons, but it's also one of these things

0:20 Speaker 1: where you go, why would anyone try to do this

0:26 Speaker 1: and think that they can get away with it? Yes,

0:28 Speaker 1: this story does involve a fraud and much of fraud.

0:32 Speaker 1: It's like, why does why does anyone think that they're

0:35 Speaker 1: going to get away with this? It's like bank robberies.

0:37 Speaker 1: You know, you ever you ever hear or see a

0:40 Speaker 1: news story about a bank robbery in twenty twenty six,

0:42 Speaker 1: and you think, why does anyone think that they can

0:45 Speaker 1: rob a bank and they're going to somehow get away

0:48 Speaker 1: with it. It's not going to happen. You're not gonna

0:49 Speaker 1: get away with robbing a bank. So this is one

0:53 Speaker 1: of those things you ready for. This Napster's three billion

0:59 Speaker 1: dollar investor charged with fraud, as US authorities say the

1:04 Speaker 1: money never existed. Oops, somebody thought they were gonna get

1:09 Speaker 1: away with it. I guess I don't know. I don't

1:11 Speaker 1: know what they were trying to do. Let's look at

1:12 Speaker 1: this and again, this is from Music Businessworldwide dot Com

1:16 Speaker 1: says here, US authorities have charged a North Carolina man

1:19 Speaker 1: with fraud, alleging that he used forged bank records in

1:24 Speaker 1: a fake banking website to obtain hundreds of millions of

1:29 Speaker 1: shares in napster owner infinite Infinite Reality without paying a cent.

1:36 Speaker 1: An indictment unsealed on Thursday, June eleven, charges that Charles

1:41 Speaker 1: Cole of Mooresville, North Carolina, with wire fraud, conspiracy to

1:47 Speaker 1: commit wire fraud, and conspiracy to commit securities fraud. That's

1:53 Speaker 1: a lot of fraud. He also faces a parallel civil

1:58 Speaker 1: complaint from the US Securities in Extreme Commission the sec

2:01 Speaker 1: which charges him alongside his lawyer, Utah attorney Torbin Welch,

2:06 Speaker 1: with and three entities he controlled. Okay, so that's where

2:10 Speaker 1: the conspiracy part of the fraud comes in. The fraud

2:12 Speaker 1: part is clear. Now we also know where the conspiracy is.

2:16 Speaker 1: The case centers on Infinite Reality, the Florida based technology

2:20 Speaker 1: company that acquired Knapster in twenty twenty five and later

2:23 Speaker 1: took on its name in mid twenty twenty four. The

2:26 Speaker 1: company was seeking to raise around three hundred and fifty

2:29 Speaker 1: million dollars, and a broker introduced it to Coal as

2:32 Speaker 1: someone who could help facilitate the investment. The indictment states

2:36 Speaker 1: Cole first proposed handing over a one billion dollar bond

2:41 Speaker 1: in exchange for three hundred and fifty million dollars of stock,

2:45 Speaker 1: but his attempts to monetize it failed. He then told

2:49 Speaker 1: the company he wanted to buy billions of dollars worth

2:52 Speaker 1: of shares directly submitting documents if falsely claimed a fifty

2:56 Speaker 1: million dollar annual income and an eight hundred million dollars

3:00 Speaker 1: net worth. Prosecutors allege, again, there's more to this, but

3:06 Speaker 1: again I just whenever I see something or hear something

3:09 Speaker 1: like this, it's like, how did this person think they

3:11 Speaker 1: were going to get away with this? Cole and Welch

3:14 Speaker 1: falsely told Infinite Reality that Coal or AVNOK controlled at

3:20 Speaker 1: least fifty five billion dollars in assets. The SEC alleges

3:26 Speaker 1: when payments failed to arrive, Cole allegedly told Infinite Reality

3:30 Speaker 1: that he held billions of dollars at a second bank,

3:34 Speaker 1: this one in Malaysia, and that he had opened an

3:37 Speaker 1: account there in the company's name. One fabricated letter claimed

3:41 Speaker 1: Cole was quote ready, willing and able to fully fund

3:45 Speaker 1: the transfer of how do I even read this three billion,

3:51 Speaker 1: three hundred and sixty million dollars. According to the indictment,

3:57 Speaker 1: the account, however, was a fiction. Coal and a co

4:01 Speaker 1: conspirator had a step. By the way, what's the point

4:05 Speaker 1: of the word co conspirator? Can't you just say conspirator?

4:08 Speaker 1: A conspiracy has to have more than one person, So

4:14 Speaker 1: why do we need co conspirator? Why can't we just

4:16 Speaker 1: say conspirator? What's the difference? Sorry, longtime listeners know, I

4:21 Speaker 1: get fixated on things like that. Cole and a co

4:28 Speaker 1: conspirator had established offshore servers hosting a fake website that

4:34 Speaker 1: mirrored the real banks site, allowing users to quote log

4:38 Speaker 1: in to fabricated accounts. The indictment states Cole repeatedly asked

4:43 Speaker 1: a Cone a co conspirator, whether the server hosting the

4:48 Speaker 1: mirror was up and running so that we can add

4:51 Speaker 1: an account and go live. According to the indictment, Infinite

4:55 Speaker 1: Reality executives received a fake welcome email, logged in and

4:59 Speaker 1: saw what looked like a funded account. Prosecutors allege, in

5:03 Speaker 1: all infinite reality, issued Cole and his entities at least

5:06 Speaker 1: two hundred and thirty nine million shares. The indictment states.

5:13 Speaker 1: Jake Clayton, US attorney, said, quote, as alleged, Charles Cole

5:16 Speaker 1: built a fiction of wealth using fake bank records, sham

5:20 Speaker 1: correspondence in a fraudulent bank website, then use that fiction

5:24 Speaker 1: to obtain hundreds of millions of shares with no intention

5:27 Speaker 1: of paying for them unquote. He also said, quote, fraud

5:31 Speaker 1: is flaw. A fraud is flaw, a fraud, whether in

5:34 Speaker 1: our public markets or our private markets unquote. By the way,

5:39 Speaker 1: I assume he's saying that, because I mean, and that

5:42 Speaker 1: should be obvious. Frauds fraud. But you know there are

5:44 Speaker 1: people and I'm not someone who does this, but there

5:48 Speaker 1: are people who will take the perspective of and you

5:51 Speaker 1: see this more and more of well, it's just somebody

5:56 Speaker 1: stealing from a big company, so that that makes it okay.

6:01 Speaker 1: People will kind of justify that, that makes it okay

6:03 Speaker 1: if you're ripping off a big company, you're ripping off

6:05 Speaker 1: a corporation who cares. But again, fraud is fraud, and

6:09 Speaker 1: that might be a good thing to remind people like

6:11 Speaker 1: this guy, Charles Cole, who again, how did he think

6:15 Speaker 1: that he wasn't going to get caught? Kenny on's an

6:21 Speaker 1: unusual name, Kenny larco Ward, the inspector in charge of

6:25 Speaker 1: the New York Field Office of the US Postal Inspection

6:28 Speaker 1: Service said, quote, mister Cole allegedly defrauded an unsuspecting company

6:32 Speaker 1: through a series of lies and misrepresentations. Unquote. It says

6:38 Speaker 1: here Cole never invested any money and instead used the

6:41 Speaker 1: shares as collateral to borrow from lenders. The indictment states,

6:47 Speaker 1: in May twenty twenty five, a US lender loaned one

6:50 Speaker 1: million dollars against nearly forty five million of the shares,

6:54 Speaker 1: with the proceeds passing through an account held by Cole's

6:57 Speaker 1: then attorney before rough two hundred and eighty thousand was withdrawn.

7:03 Speaker 1: The SEC identifies that attorney as Welch In alleges that

7:05 Speaker 1: he secured the loan by providing forged documents to verify

7:09 Speaker 1: Cole's wealth and giving the lender false assurances. Cole later like,

7:14 Speaker 1: what's the point of all? Like is it just again?

7:18 Speaker 1: I know I'm editorializing a lot here, but I just

7:20 Speaker 1: I wonder about this. Are these people just crazy? These conspirators,

7:24 Speaker 1: They couldn't, Like, no rational human being could possibly think

7:29 Speaker 1: that they're going to get away with this. Anything that

7:32 Speaker 1: you do leaves a digital footprint, leaves breadcrumbs. You can't

7:38 Speaker 1: possibly get away with anything like this. You can't. And

7:44 Speaker 1: I'm sure somewhere there's a story of someone who pulled

7:48 Speaker 1: off a grandiose scheme like this and got away with it. Okay,

7:51 Speaker 1: but the odds are so incredibly low. I mean, how

7:58 Speaker 1: did these people think they had a shot at getting

8:00 Speaker 1: away with this? They have to be insane. These are

8:03 Speaker 1: not mentally well people to even attempt this scheme, in

8:07 Speaker 1: my opinion, it says here and again this is from

8:11 Speaker 1: a music businessworldwide dot com. Cole later tried to acquire

8:15 Speaker 1: still more shares through a tender offer, fabricating a screenshot

8:22 Speaker 1: of an eleven billion dollar balance and an account that

8:25 Speaker 1: did not exist. Prosecutors alleged Cole even directed a co

8:28 Speaker 1: conspirator to fix mismatched formatting on the forged statements so

8:35 Speaker 1: they would match all the others. According to the indictment,

8:38 Speaker 1: the scheme unraveled in March twenty twenty six, when Infinite

8:42 Speaker 1: Reality rescinded all the shares it had issued to Coal

8:46 Speaker 1: and his entities. As Music Business Worldwide reported in March

8:50 Speaker 1: twenty twenty five, Infinite Reality acquired Napster in a two

8:53 Speaker 1: hundred and seven million dollar deal. Weeks after announcing what

8:56 Speaker 1: it described as a three billion dollar funding from an

9:01 Speaker 1: unnamed private investor. The money never arrived, and prosecutors now

9:06 Speaker 1: led to the investor behind it, Cole never had the

9:09 Speaker 1: funds he promised. Napster launched in nineteen ninety nine as

9:13 Speaker 1: a file sharing service before being shut down following a

9:15 Speaker 1: wave of copyright lawsuits, and the brand has changed hands

9:19 Speaker 1: repeatedly as a licensed streaming service. And by the way,

9:23 Speaker 1: Napster again. When we talk about, you know, the changes

9:26 Speaker 1: and the music industry and everything. Right now, the big

9:29 Speaker 1: change is AI. AI is causing a lot of upheople

9:32 Speaker 1: in the music industry. But back then, in nineteen ninety

9:35 Speaker 1: nine into the early two thousands, it was Napster. I

9:38 Speaker 1: was working for Transworld Entertainment at the time. I was

9:41 Speaker 1: a store manager. Trans World owned at that time Strawberries,

9:44 Speaker 1: which eventually got bought. Well actually this was before trans

9:48 Speaker 1: World owned it Strawberries was a separate company, but anyway,

9:51 Speaker 1: it was a music store, so we sold CDs and

9:54 Speaker 1: Jesus at that time, we saw at cassette tapes, but

9:56 Speaker 1: we were mostly selling CDs, so we were selling music.

9:59 Speaker 1: So when Napster showed up, like there was and this

10:04 Speaker 1: is not hyperbolic, this is absolute fact, there was what

10:09 Speaker 1: could only be described as panic in the industry, both

10:13 Speaker 1: on the retail side of it and all throughout the

10:16 Speaker 1: music industry. There was panic because it was like Napster

10:19 Speaker 1: comes along, and you can and it was the harbinger

10:23 Speaker 1: of what we have now. But you know, they the

10:26 Speaker 1: music industry really had to adapt here, and it took

10:28 Speaker 1: a long time, but there was panic. Napster comes along,

10:30 Speaker 1: and I remember having conversations with people about this where

10:32 Speaker 1: I said, you know, so I guess music is just

10:35 Speaker 1: free now music is free, so this changes everything and

10:39 Speaker 1: there was absolute panic, all right. So that was my

10:45 Speaker 1: little Napster sidebar, it says here. In twenty eleven, it

10:49 Speaker 1: merged with the subscription platform Rhapsody and operated under the

10:54 Speaker 1: Rhapsody name in the US until rebranding re rebranding to

10:58 Speaker 1: Napster again in twenty sixteen. It was sold to virtual

11:01 Speaker 1: reality company Melody VR in a seven million dollars deal

11:05 Speaker 1: in twenty twenty, then to hive Mind Capital Partners and

11:09 Speaker 1: cryptocurrency firm Algorand in twenty twenty two, before the Infinite

11:14 Speaker 1: Reality acquisition in twenty twenty five. The case has been

11:17 Speaker 1: assigned to US District Court Judge Vernon S. Broderick, with

11:22 Speaker 1: Coal presented in the Western District of North Carolina on Thursday.

11:26 Speaker 1: The wire fraud and wire fraud conspiracy counts each carry

11:29 Speaker 1: a maximum sentence of twenty years in prison, while the

11:32 Speaker 1: securities fraud conspiracy counts carry a maximum of five years.

11:35 Speaker 1: The DOJ said. The full indictment also seeks the forfeiture

11:39 Speaker 1: of any proceeds Coal made from the alleged scheme. The

11:42 Speaker 1: charges are allegations, and Cole is presented innocent is I'm sorry,

11:45 Speaker 1: presumed innocent until and unless proven guilty. So there you go.

11:50 Speaker 1: But again, like, how does somebody do this and think

11:52 Speaker 1: that they have any shot of getting away with it?

11:56 Speaker 1: It's it's truly, truly remarkable.