Monster Is Accusing Beats, Dr. Dre, And Jimmy Iovine Of Making A 'Sham' Deal To Force Monster Out Of The Company

Audio equipment maker Monster is suing Beats and its cofounders, Jimmy Iovine and Dr. Dre, as well as phone company HTC. Monster is accusing them of tricking Monster out of partial ownership of the company, reports the San Jose Mercury.

Apple purchased Beats last year for $US3.2 billion, but is not named in the lawsuit.

The suit goes back to an early partnership between Monster and Beats. Monster helped Beats develop its iconic line of headphones, which were released in 2008. 

The lawsuit, filed in San Mateo County Superior Court on Tuesday, claims that Beats then engaged in a “sham deal” with phone maker HTC. Under that deal, HTC purchased 51% of the company for $US300 million. Beats then repurchased 25.5% of those shares less than a month later, the suit alleges. This triggered a change of ownership clause that let Beats legally claim the intellectual property developed by the company, says the suit.

Also in the lawsuit, Monster CEO Noel Lee claims that a Beats board member, Paul Wachtel, told him in September 2013 no liquidity event was on the horizon. With that information, Lee sold his 1.25% stake in the company for $US5.5 million. 

A few months later, in May 2014, Apple agreed to buy Beats for $US3.2 billion. That stake would have been worth about $US40 million. Lee prevoiusly owned 5% of the company, which would have been worth more than $US100 million.

Monster’s lawyer, Joe Cotchett, told the Mercury News that the damage to Beats was in the “hundreds of millions” of dollars.

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