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Babelgum Founder Arrested in Money Laundering Probe

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UPDATE Babelgum founder Silvio Scaglia was taken into custody by Italian police last Friday. Law enforcement officials had issued a warrant for Scaglia’s arrest earlier last week as the result of a wide-scale money laundering investigation, and he is expected to be questioned as early as tomorrow, according to a BusinessWeek report.

Scaglia founded Babelgum in 2007 and has been single-handedly bankrolling the London-based video startup ever since. A Babegum spokesperson went to great lengths today to tell us that the investigation won’t have any negative impact on the company. “Babelgum’s business plan is fully funded for 2010 and beyond,” he said, without going into specifics. Still, the arrest isn’t exactly helping the startup that has been struggling to find its place in the online video world for some time.

Italian law enforcement officials allege that Scaglia was part of a 2 billion euro ($2.7 billion) tax fraud and money-laundering scheme during his time at Fastweb, the Italian ISP he founded in 1999. They issued a total of 56 arrest warrants last week, and the Financial Times is reporting that police confiscated a number of paintings and other works of art that were purchased with the fraudulent money. Scaglia was abroad when officials issued the warrant, but returned to Italy Friday and was taken into custody at the airport.

Babelgum’s spokesperson refused to provide details about the amount of money Scaglia has invested in the startup so far.  The company announced in 2008 that Scaglia had invested 50 million euros and was planing on shelling out another 40-60 million euros annually throughout 2010. All in all, Scaglia committed to spend as much as 350 million euros on Babelgum.

The company has shifted focus multiple times in recent years. Babelgum originally emerged as a competitor of the P2P video service Joost, but shifted to web-based streaming early last year. It originally envisioned itself as a destination for full-length indie feature films and documentaries, but has recently been investing more money in original short-form web content like the viral video hit Little Jersey Shore. It’s also been securing deals for exclusive music video premieres from bands like Coldplay and Weezer, potentially competing with music video venture VEVO.

Babelgum significantly reduced its staff at the end of last year, shuttering its Dublin headquarter as well as its Nice, France-based R&D office. It also reduced staff at its New York office. The company called the cuts result of its growing focus on content, and its spokesperson went out of his way today to assure me that these efforts are not hampered by the investigation. “Mr. Scaglia’s assets have NOT been seized and the company’s functioning and effectiveness has not been impacted in any way,” he wrote in an email (emphasis in the original), adding that Babelgum’s operations are not part of the investigation.

UPDATE: Babelgum says that it did not reduce staff in its New York office.

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5 Responses to “Babelgum Founder Arrested in Money Laundering Probe”

  1. NewbieHere

    Oh thank you, soooo much! Nothing about that “company” made sense.

    “Let’s make a video sharing site with a much advertised focus of never SHARING videos. Let’s support as few browsers as possible. If folks can’t afford the latest OS to support the latest Flash, we do not want their business. Let’s pay for exclusivity deals for the newest, smallest audience shows, and lock out most of their fan-base with an overly proprietary interface. Yeah, this should work great!”

    Naaah, this did not have ANY of the markings of a money laundering scheme.