That does sound awful. Did they allow a grace period for people to download/migrate their stuff off the platform?
But yes, apparently it would be violating US copyright law to rearrange music this way.
http://ostrowesq.com/no-you-dont-own-your-arrangement-of-tha...
You can't start a music platform without having some sort of peripheral awareness of how litigious that industry is. They could've tried to build it out more responsibly early on and chose not to.
Of course there is. You overestimate small companies, which might not even have a permanent lawyer on board...