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Sony suing Rdio for fraud, keeping planned Pandora sale secret

rdio and teardrop canvasSony Music is suing the former leaders of Rdio, claiming that the now-defunct streaming service cut it out of millions in its handling of bankruptcy and its sale negotiations with Pandora. Rdio’s former CEO Anthony Bay, General Counsel Elliott Peters, and Senior Vice President of Content Licensing Jim Rondinelli were named as defendants in the claims of misrepresentation and fraudulent behavior.

Sony’s complaint says that Rdio owed the label $5.5 million as a minimum revenue guarantee for its content agreement in 2014. At that time, Rdio execs approached Sony to renegotiate the agreement. Sony agreed to an extension, but alleged that Rdio was in simultaneous talks with Pandora to file for bankruptcy and have the online radio service buy up its assets. (Pandora is now planning to launch its own on-demand streaming service based on Rdio’s tech.)

“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 Sony suit claims. The suit says those discussions were kept secret from Sony in order to settle an extension and keep the label from demanding immediate payment.

Rdio did receive a renewal amendment that came with an obligation to pay Sony $2 million on Oct. 1, 2015. “This presented a dilemma for Rdio: the Pandora deal would be jeopardized either upon Rdio’s taking $2 million in cash out of its business, or upon Rdio failing to make the payment to SME and putting its ongoing access to SME’s content at risk,” the suit reads. Sony said that Rdio’s leaders claimed to be raising capital in order to secure another extension.

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Anna Washenko

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