Ozy Media, CEO Carlos Watson accused of fraud

Ozy Media and Chief Executive Carlos Watson were indicted on charges of lying to investors and lenders about the size of the company’s audience and other aspects of the company, a crippling blow to a once-promising start-up that gained support from early on. big brand advertisers and venture capitalists.

Mr. Watson was arrested Thursday morning at a Manhattan hotel and charged with falsifying information about Ozy’s performance and inflating projected earnings in an effort to secure tens of millions of dollars in investments to help the young man’s mounting debts. company, according to an unsealed indictment. Thursday. The US Attorney’s Office in Brooklyn, NY charged the company and Mr. Watson with conspiracy to commit securities fraud and bank fraud.

The arrest of Mr. Watson came after Samir Rao, a former executive with whom he co-founded Ozy, pleaded guilty to fraud and identity theft charges in a classified federal court proceeding earlier this week. The Securities and Exchange Commission has also filed a civil lawsuit against Messrs. Watson and Rao and Ozy, alleging they lied to investors.

Ozy came under federal scrutiny for his business practices after the New York Times reported in 2021 that Mr. Rao, then chief operating officer, was posing as an Alphabet executive from Inc

YouTube during a fundraising call with Goldman Sachs Group Inc.

Mr Watson acknowledged the incident in a statement at the time but said Mr Rao’s behavior during the conversation was due to a mental health issue.

In reality, prosecutors alleged, Mr Watson was aware of Mr Rao’s impersonation and instructed him through a series of text messages on what to say during the conversation. Messrs Watson and Rao also agreed that in 2020, Mr Rao would impersonate a cable network executive via a fake email address in an attempt to obtain a loan from a bank, the indictment said. The men were both charged with aggravated identity theft.

“Carlos Watson is a con artist whose business strategy was based on outright deceit and fraud,” said Breon Peace, U.S. Attorney in Brooklyn.

Lanny Breuer, Mr Watson’s lawyer, said he was disappointed that his client had been arrested. “We have acted in good faith and believe we have had a constructive dialogue with the government and are shocked by the actions this morning,” he said.

A lawyer for Ozy said the company was in talks with the government about a possible solution without criminal charges.

“It’s hard to understand what actions have been taken today in light of those discussions,” attorney Jason Weinstein said.

Mr Rao pleaded guilty on Tuesday under a court-approved John Doe pseudonym. He admitted that between 2018 and 2021 he made misleading statements to investors and inflated the company’s financial performance, while also committing identity theft.

He was allowed to enter the plea using the Doe pseudonym to conceal his identity, while the U.S. law firm in Brooklyn continued to investigate Ozy, court documents show. His case was opened on Thursday following the arrest of Mr Watson.

“Mr. Rao has pleaded guilty and has accepted full responsibility for his actions,” his lawyers said in a statement. “

Another former Ozy official pleaded guilty to fraud and conspiracy charges on Feb. 14. Suzee Han, the company’s former chief of staff, told a magistrate that she had falsified financial information about the company at the direction of two executives. She has not identified the executives. Mrs. Han was also allowed to enter her plea as Jane Doe. Her attorney declined to comment.

Mr Rao and Ms Han were each released on bail pending sentencing later this year.

Launched in 2013, Ozy, which has published youth-oriented articles, podcasts and videos about current events, has struggled to survive as it faced questions about its business practices. Mr. Watson, a former Goldman Sachs banker and anchor on MSNBC, has played a prominent role in the startup’s produced content, hosting a talk show that features interviews with celebrities including Matthew McConaughey and Scarlett Johansson.

The company had raised $83 million as of April 2020 and had a valuation of $159 million at the time, according to startup research firm PitchBook Data.

Mr. Rao resigned from Ozy after the New York Times reported on his impersonation. Representatives from Goldman Sachs and YouTube did not immediately respond to requests for comment.

The article also raised questions about discrepancies between Ozy’s stated audience size and the actual audience. At the time, Mr. Watson called the reporting flawed, but Ozy was losing advertisers, licensing fees and talent, while also coming under scrutiny from the Justice Department and the Securities and Exchange Commission.

Ozy’s board announced in October 2021 that the company would cease operations, but reversed course days later. The company is struggling to regain its financial position and has at one point shrunk to six full-time employees in addition to Mr Watson, the company’s interim chief financial officer said in an October 2022 lawsuit.

Ozy survived with significantly reduced advertising costs, but the company made a modest turnaround through new manufacturing efforts and hiring, the CFO said in the filing. Earlier this month, Semafor reported that Mr Watson recently told potential advertisers and investors at a media conference that the company was bringing back its event series, Ozy Fest, after previously discontinuing it.

Write to James Fanelli at james.fanelli@wsj.com

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