Ozy Media founder Carlos Watson denies federal fraud charges

Feb 23, 2023, 10:36 AM | Updated: Feb 24, 2023, 5:01 am
Carlos Watson, center, leaves Brooklyn federal court in New York, Thursday, Feb. 23, 2023. The foun...

Carlos Watson, center, leaves Brooklyn federal court in New York, Thursday, Feb. 23, 2023. The founder of the troubled digital start-up Ozy Media has been arrested on fraud charges as part of what prosecutors say was a scheme to prop up the financially struggling company. (AP Photo/Seth Wenig)

(AP Photo/Seth Wenig)

NEW YORK (AP) — The founder of the troubled digital start-up Ozy Media pleaded not guilty Thursday to federal fraud charges accusing him of scheming to prop up his financially struggling company, which hemorrhaged millions of dollars before it shut down amid revelations of possibly deceptive business practices.

Federal agents arrested Carlos Watson at a Manhattan hotel earlier in the day after two of the company’s top executives pleaded guilty this month to fraud charges, including Ozy’s then-chief operating officer, Samir Rao, who prosecutors say impersonated a YouTube executive during a pitch to Goldman Sachs, a potential investor.

The indictment unsealed Thursday in U.S. District Court in Brooklyn accuses Watson and Ozy Media of conspiring to commit securities fraud and wire fraud. Watson was also charged with identity theft for his role in the impersonation of several media executives.

In a parallel civil case, the Securities and Exchange Commission also charged Watson and the company with defrauding investors of about $50 million “through repeated misrepresentations concerning the company’s basic financial condition, business relationships, and fundraising efforts.”

Ozy advertised itself as a progressive digital platform for “the New and the Next,” saying on its website that it sought to create a “space for fresh perspectives, introduces you to rising stars and breakthrough trends, and offers new takes on everything from news and culture to technology, business, learning and entertainment.”

Watson, a former host on MSNBC and CNN, cofounded the company with Rao in California’s Silicon Valley a decade ago.

But the company imploded under insurmountable debt and questions over its fundraising tactics. As its expenses mounted, it relied on high-interest loans and began to more aggressively court investors.

Scrutiny deepened after the New York Times reported in October 2021 that an Ozy official had masqueraded as a YouTube executive in a failing attempt to get Goldman Sachs to infuse money into the struggling enterprise.

Shortly after, Ozy said it was shutting down — although Watson has since tried to revive the endeavor.

Watson’s attorney, Lanny Breuer, said he was “deeply disappointed by the arrest” and thought that “good faith and progressive dialogue” with the government were progressing.

“Given the government’s claims of promoting such dialogue in general,” Breuer said, “I simply do not understand the dramatic decision to arrest Carlos this morning.”

Watson was released following his arraignment after posting $1 million bond. He is expected to next appear in court April 3. Company representatives are back in court March 8.

Rao pleaded guilty in federal court this week, while Ozy’s former chief of staff, Suzee Han, did so last week. Both were released on bail to await sentencing. The guilty pleas and arrests were first reported by the Wall Street Journal.

In a statement posted on its website Thursday, the SEC said Rao and and Han “agreed to resolve the charges against them.”

Authorities say Watson and his business partners, between 2018 and 2021, attempted to defraud investors and lenders of “tens of millions of dollars through fraudulent misrepresentations and omissions” about the company’s debts and other key financial information. At one point, the indictment alleges, the company used a forged contract to help win a loan from a bank.

“As alleged, Carlos Watson is a con man whose business strategy was based on outright deceit and fraud,” Breon Peace, the U.S. Attorney for the Brooklyn-based Eastern District of New York, said in a statement. “He ran Ozy as a criminal organization rather than as a reputable media company.”

Michael J. Driscoll, the assistant director-in-charge of the FBI’s New York field office added that Watson “repeatedly attempted to entice both investors and lenders through a series of deliberate deceptions and fabrications.”

If convicted, Watson faces at least two years in prison up to a maximum of 37 years, the U.S. attorney’s office said.

The SEC’s civil complaint, also filed in the U.S. District Court in Brooklyn, accuses Watson and the company of violating anti-fraud provisions of federal securities laws.

“We allege that over the course of several years, the defendants raised approximately $50 million from victim investors on the basis of fraudulent documents and repeated misrepresentations, including, at least in one case, falsely impersonating a potential business partner during a meeting with an investment bank,” said Gurbir S. Grewal, the SEC’s director of enforcement.

The agency, whose regulatory responsibilities include protecting investors, accused Ozy officials of “routinely and purposely” presenting potential investors with dubious financial information, including falsely claiming that the company’s revenues were at least twice what they actually were.

In addition, the SEC said, Watson and Rao also sought investments by allegedly telling prospective investors that they were securing money from high-profile companies and investors.

In one case, the SEC and federal prosecutors contend, Watson and Rao launched a ruse that had Rao impersonating a YouTube executive to convince a prospective investor that it was getting licensing revenue from the online video-sharing behemoth.

When the potential investor discovered the alleged ploy, Watson asserted that Rao was suffering from a “mental health crisis,” the SEC said.

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


(Facebook Photo/Superior Court of Arizona in Yavapai County)...
Associated Press

Arizona judge has cases reassigned following DUI arrest

The Arizona Supreme Court has ruled that all cases currently assigned to a Yavapai County Superior Court judge recently arrested on suspicion of extreme DUI will be reassigned to other judges.
3 days ago
Haitian migrant Gerson Solay, 28, carries his daughter, Bianca, as he and his family cross into Can...
Associated Press

US, Canada to end loophole that allows asylum-seekers to move between countries

President Joe Biden and Canadian Prime Minister Justin Trudeau on Friday announced a plan to close a loophole to an immigration agreement.
6 days ago
Expert skateboarder Di'Orr Greenwood, an artist born and raised in the Navajo Nation in Arizona and...
Associated Press

Indigenous skateboard art featured on new stamps unveiled at Phoenix skate park

The Postal Service unveiled the “Art of the Skateboard" stamps at a Phoenix skate park, featuring designs from Indigenous artists.
6 days ago
(Facebook Photo/City of San Luis, Arizona)...
Associated Press

San Luis authorities receive complaints about 911 calls going across border

Authorities in San Luis say they are receiving more complaints about 911 calls mistakenly going across the border.
12 days ago
(Pexels Photo)...
Associated Press

Daylight saving time begins in most of US this weekend

No time change is observed in Hawaii, most of Arizona, Puerto Rico, the U.S. Virgin Islands, American Samoa, Guam and the Northern Marianas.
20 days ago
Mexican army soldiers prepare a search mission for four U.S. citizens kidnapped by gunmen in Matamo...
Associated Press

How the 4 abducted Americans in Mexico were located

The anonymous tip that led Mexican authorities to a remote shack where four abducted Americans were held described armed men and blindfolds.
20 days ago

Sponsored Articles

(Desert Institute for Spine Care in Arizona Photo)...
Desert Institute for Spine Care in Arizona

5 common causes for chronic neck pain

Neck pain can debilitate one’s daily routine, yet 80% of people experience it in their lives and 20%-50% deal with it annually.
Day & Night Air Conditioning, Heating and Plumbing

Company looking for oldest air conditioner and wants to reward homeowner with new one

Does your air conditioner make weird noises or a burning smell when it starts? If so, you may be due for an AC unit replacement.
(Desert Institute for Spine Care photo)...

Why DISC is world renowned for back and neck pain treatments

Fifty percent of Americans and 90% of people at least 50 years old have some level of degenerative disc disease.
Ozy Media founder Carlos Watson denies federal fraud charges