Monster sues Apple’s Beats Electronics, founders Dr. Dre, Jimmy Iovine claiming fraud

“Audio-equipment maker Monster LLC and its chief executive sued Apple Inc.’s Beats Electronics LLC, its co-founders Jimmy Iovine and Dr. Dre, and Taiwanese smartphone maker HTC Corp. for allegedly conspiring to dupe Monster out of a deal with Beats before the company was sold to Apple for $3.2 billion last year,” Daisuke Wakabayashi reports for The Wall Street Journal.

“In a complaint filed in Superior Court in San Mateo County, Calif., Monster said Beats ‘fraudulently acquired’ the Beats by Dr. Dre line of headphones through a ‘sham transaction’ with HTC, which agreed to purchase a 51% stake in Beats for $300 million in 2011,” Wakabayashi reports. “The complaint asserts that Beats repurchased 25.5% of its own shares from HTC less than a month after the deal closed, allowing Beats to end its relationship with Monster due to a change-of-ownership clause. Monster helped launch the Beats brand of headphones, a flashy and pricey line of music accessories that proved popular among celebrities and teenagers, in July 2008. Monster said it developed, manufactured and distributed the headphones in exchange for the licensing rights to the Beats brand and celebrity marketing by Mr. Iovine and Dr. Dre, whose real name is Andre Young.”

“Worried about a lack of transparency at Beats after the HTC deal, Monster CEO Noel Lee also reduced his 5% stake in Beats to 1.25%,” Wakabayashi reports. “In September 2013, eight months before Apple agreed to buy Beats in May 2014, Mr. Lee sold his remaining shares. In the suit, Mr. Lee alleges he sold the shares after being misled by a board member that no ‘liquidity event’ was on the horizon for the next year or two. But Monster’s suit said Mr. Iovine and Apple Senior Vice President Eddy Cue later told a technology conference that the deal was several years in the making. Apple isn’t named as a defendant in the suit.”

Read more in the full article here.

MacDailyNews Take: Wouldn’t being told by a board member “that no ‘liquidity event’ was on the horizon” constitute insider trading? Did the public have an opportunity to query Beats board members about the possibility of suitors?

Beats. A triumph of marketing over sound quality. – MacDailyNews Take, May 8, 2014

[Thanks to MacDailyNews Readers “Fred Mertz” and “Bill” for the heads up.]

Related articles:
Monster CEO sounds a little bitter over Apple’s planned $3.2 billion Beats acquisition – May 14, 2014
Apple sues headphone entrepreneur for claiming to be Beats co-founder – September 30, 2014


      1. Yes, the overwhelming belief that you need thick wires to send a micro currents to speakers, that the bigger and more expensive the wire and connector, the better the sound would be. . . they invented this belief and fostered it in audiophiles, but there is no truth in it. I was amused by the audiophiles who insisted they could hear the differences despite the fact there was no discernible difference to be found on a scope!

        1. Yeah, I fell for it back in the ’80s and bought a set of those firehose size speaker cables. They had enough copper to wire a dozen homes; but they sure did look impressive at the time, lol.

          1. When I first looked at what Monster was peddling, instead of falling for their hype, I fell back on my high school electronic classes and realized that I could get the same results from a 7¢ per foot line cord I could buy at the hardware store that could handle that power necessary to light a 150Watt lightbulb. . . instead of the micro currents necessary to drive a loudspeaker. There was certainly enough copper wire in the line cord, the insulation had a smooth side for hot, and a stripe running down the neutral side, so that took care of figuring out polarity for hooking up the positive and negative at the speaker so you could avoid phase problems. . . and it wasn’t $35 for a pair of 10 foot Monster Cables! Oh, and Radio Shack was selling an eight pack of banana plugs, if you needed them for $2.99, but I knew I could pick up banana plugs at California Radio & Electronics for 19¢ each and Monster’s Gold Plating was unnecessary.

            Think about it. Monster had these “audiophiles” bamboozled into thinking they needed quarter inch thick braided cables to carry an audio signal that originated from a 1/16th inch wide trace on a printed circuit board that, if it’s a standard board, is only 0.00137 inch thick! That’s like using a firehose with the faucet for your garden. . .

  1. Great point MDN. It does seem like a pretty cut and dry case of insider trading. He made a rather significant trade based on proprietary knowledge. Just because he was duped I don’t think that absolves him of liability

    1. Yeah, he is complaining that he *didn’t* get to complete his insider trading as he hoped. What kind of argument is that? Good for Beats. (You won’t hear me say that often!)

  2. The whole Beaten by Dre deal makes absolutely no sense on any level.

    Almost $3 billion for a company that markets really crappy headphones and has a me too music service modeled on what Microsoft and Real Networks were pimping a few years back riddled with shady business practices? Where is the value?

    They say the deal was based upon the marketing power of Beaten by Dre’s founders/scammers which is antithetical to what Apple as a company and a brand was built upon. The Apple of Steve Jobs acts 1 and 2 were based upon delivering technology that delivered as promised and worked- an honest transaction. Beats is the poster child for a shitty product marketed based upon the celebrated culture for lemmings and wannabes.

    The whole Beaten by Dre thing is loaded with bad Karma. Steve Ballmer overpaid for the Clippers but at least he got an NBA team in Los Angeles. I do not see the almost $3 billion flushed down the toilet with the deal that bought Beaten by Dre.

    1. I have heard Micro-softies and others make almost identical arguments against Apple actually. Much as I love the man I wouldn’t claim that Jobs wasn’t an expert at getting the deal we wanted in whatever way he could, certainly was prone to push the boundaries a bit.

    2. Can’t speak about any deal, but Beats ‘phones, or at least the Solo II/HD models are certainly *not* crappy.
      The build quality is equal to pretty much any others in the same price bracket.
      Sound quality is subjective, though; it’s exactly what the target market wants, lots of bass with not so much emphasis on the midrange, because those who listen to predominantly EDM (Electro Dance Music), or any beat-heavy music couldn’t give a shit about the vocals.
      I don’t listen to dance/electro music but I do own a pair of Beats Solo HD’s and I love ’em!
      I love the fact they’re compact, they fold down neatly, and the cable is very easily replaced, and the sound quality is something I can, and have, modified with an app called EQu.
      Excellent app, allows a huge range of control across the entire frequency range, I’ve set up a curve that smoothly boosts everything from 250Hz upwards, giving me a pair of ‘phones that sparkle on vocals and acoustic music.
      They also cost me 50% of retail from eBay so a bargain, really.
      Reviews say the new Solo II’s are very much improved, so the h8t3rz can go and whine about something else.

  3. Monster knows all about duping. They’ve been convincing customers for years that their hugely overpriced speaker cables are somehow better than lamp cord. Not a chance.

  4. I have known mr lee for decades. He’s an ass, back stabber, he steals designs and patents as well as just outright has no business morals. He’s known in the industry as slime. I have been at dinner tables with him and have had to excuse myself when he starts to verbally masterbate at the table while idiot worshipers sigh and send idol love to him. His millions and all his exotic cars and luxury houses around the world mean nothing if your a creep. I don’t wish bad on anyone but his health is partial payback for ruining many people’s lives.

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