Santa Cruz Man Faces Wire Fraud Charges Over Alleged Streaming Service

Legal Troubles for Santa Cruz Tech CEO

A 70-year-old software company CEO from Santa Cruz recently made his first appearance in federal court after being arrested on charges of wire fraud. The charges stem from alleged misrepresentations regarding his music streaming service, according to a statement from the U.S. Attorney’s Office in the Northern District of California.

Hank Risan, the CEO of Media Rights Technologies Inc. and BlueBeat Inc., was indicted and appeared in a federal courtroom in San Jose following an FBI investigation. The unsealed documents reveal that Risan is accused of offering and selling stock and stock conversions in his companies. The allegations center around false claims about the value and ownership of BlueBeat, a music streaming service.

The indictment, filed on July 31, accuses Risan of misleading investors with false information about his companies. These claims include falsely asserting that BlueBeat had copyright ownership over approximately 2.5 million songs by well-known artists. Additionally, prosecutors allege that Risan made false comparisons and valuations of the service, claimed an imminent acquisition by a multinational media and entertainment conglomerate, and suggested the involvement of a former undersecretary to the U.S. Department of Commerce.

Prosecutors highlighted a specific statement made by Risan in 2020, where he told investors, “I received a very favorable comparable regarding the BlueBeat Catalog,” and added, “To put that news in perspective, BlueBeat contains approximately 2.5 million songs and $10K per song brings music to my ears. You can do the math!”

However, prosecutors argue that these statements were misleading. They claim that BlueBeat did not actually own the copyrights to the 2.5 million songs, the valuations of MRT and BlueBeat were fictional, the advertised multinational conglomerate was not in the process of acquiring BlueBeat or its catalog, and the former Commerce official was not involved with the service.

The indictment also states that Risan persuaded investors to purchase approximately $1.9 million in stock and stock conversions, as well as make payments labeled as “loans.” According to prosecutors, Risan obtained roughly $3.2 million through these efforts and allegedly used the funds for personal expenses, including paying credit card bills, purchasing collectibles, and making mortgage payments on his home.

Risan was released on a $100,000 unsecured bond. He is scheduled to appear in district court on October 8 for a status conference before U.S. District Judge P. Casey Pitts.

It's important to note that indictments only allege that crimes have been committed, and defendants are presumed innocent until proven guilty beyond a reasonable doubt. If convicted, Risan could face up to 20 years in prison and a fine of $250,000 for each count of wire fraud. The case is being prosecuted by assistant U.S. attorneys Matthew Chang and Jeff Nedrow, with assistance from Natachiana Burney and Susan Kreider.

Past Legal Issues

Media Rights Technologies and BlueBeat have faced legal challenges before. In 2009, the companies were involved in a federal copyright infringement lawsuit by EMI Records over claims that BlueBeat was selling soundalike recordings of Beatles songs at 25 cents apiece. The case ended with a $950,000 no-fault settlement.

In 2021, the Media Rights Technologies office on River Street was subjected to a court-authorized FBI raid. At the time, Risan told the Sentinel that the raid was due to a dispute with an investor’s widow after he reportedly rejected an offer to transfer the stocks to her. Risan stated that the company showed FBI officials all necessary documentation during the raid, but it remains unclear if the FBI conducted any follow-up visits between the 2021 raid and Tuesday’s arrest.