Qtrax executives issued a news release Saturday night claiming they had all labels on board, then spent Sunday trying to cajole them into providing content even though the deals weren't signed, according to sources at two labels. That didn't work. Warner Music Group, which is publicly traded, was the first of the four labels to tell reporters it had reached no agreement.
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Qtrax jumped gun on online deal, labels say
Four big music firms say they haven't signed pacts with the service.
For The Record
Los Angeles Times Tuesday, January 29, 2008 Home Edition Main News Part A Page 2 National Desk 2 inches; 73 words Type of Material: Correction
Qtrax deal: In some papers Monday, a Business section article about an online music service called Qtrax said the four major record companies had agreed to license their digital catalogs to the service. Executives from Warner Music Group, EMI Group, Universal Music Group and Sony BMG Music Entertainment say they have been in negotiations with Qtrax but thus far have not signed a deal. For an update on the situation, see Page C6.
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Qtrax said Monday that it would delay the service until it could get contracts finalized.
Label executives, some of whom had agreed to support an earlier, less radical, version of the system for ad-supported downloads, said they were either still negotiating with Qtrax or were willing to do so.
But they marveled at the company's willingness to officially proclaim something that wasn't there. Qtrax even released supportive quotes from record-label executives that had been agreed upon more than a year before and that referred to different incarnations of the service.
Brilliant Technologies shares set a 52-week high of 9.2 cents Friday in heavy over-the-counter trading before any official announcement. But trading volume tripled Monday and the share price plunged to 5 cents, cutting the stock's market value to about $35 million.
That market value drop of more than $25 million should be enough to trigger a shareholder class-action lawsuit alleging fraud, Columbia University securities law expert John Coffee said.
"There will predictably be some litigation," Coffee said. "There's a good chance the SEC may take action too."
A spokesman for the Securities and Exchange Commission said the agency couldn't comment on specific companies. He noted that such "pink sheet" stocks as Brilliant Technologies' face much less scrutiny than companies trading on major exchanges.
Qtrax spokesman Justin Kazmark declined to comment on the applicability of securities laws forbidding false material statements.
He also declined to comment on estimates by those at Midem that the company had spent $1 million on the launch events, including the performances by Blunt and LL Cool J.
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joseph.menn@latimes.com
