NEW YORK (AP) — The founder of troubled digital start-up Ozy Media was arrested Thursday on federal fraud charges as part of what prosecutors said was a plan to shore up the financially struggling company, which has been hemorrhaging of millions of dollars before closing amid revelations of possible deceptive business practices.
Federal agents arrested Carlos Watson at a Manhattan hotel after two of the company’s top executives pleaded guilty this month to fraud charges, including then Ozy chief operating officer Samir Rao, who allegedly impersonated an executive of YouTube during a presentation to Goldman Sachs, a prospective investor.
The indictment opened Thursday in the U.S. District Court in Brooklyn accuses Watson of conspiring to commit securities fraud and wire fraud, as well as identity theft for his role in impersonating several media executives.
Ozy advertised itself as a progressive digital platform for “the new and the next,” stating on its website that it sought to create a “space for fresh perspectives, introduce you to rising stars and game-changing trends, and offer fresh takes on everything from news and culture to technology, business, learning and entertainment But it imploded under insurmountable debt, forcing it to rely on high-interest loans and court investors more aggressively.
In a parallel civil lawsuit, the Securities and Exchange Commission also accused Watson and the firm of defrauding investors of approximately $50 million “through repeated misrepresentations regarding the company’s basic financial condition, business dealings, and fundraising efforts.” funds”.
The SEC said Rao and Ozy’s former chief of staff Suzee Han had “agreed to settle the charges against them,” as they have done separately with US prosecutors.
Rao pleaded guilty in federal court this week, while Han did so last week. The guilty pleas and arrest were first reported by The Wall Street Journal.
“I am deeply disappointed by today’s events,” Watson’s attorney Lanny Breuer said after his arrest. “We have been engaged, I thought, in a constructive and good faith dialogue with the government. And given the government’s claims to promote such dialogue in general, I simply don’t understand the dramatic decision to arrest Carlos this morning.”
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Scrutiny over the company deepened after The New York Times reported in October 2021 that an Ozy official had masqueraded as a YouTube executive in a failed attempt to get Goldman Sachs to infuse money into the struggling firm.
Shortly thereafter, Ozy said it was closing.
“As alleged, Carlos Watson is a fraudster whose business strategy was based on deception and fraud,” said Breon Peace, the U.S. attorney for the Eastern District of New York based in Brooklyn. as a reputable media company.
Michael J. Driscoll, the deputy director in charge of the FBI’s field office in New York, said Watson “has repeatedly attempted to lure both investors and financiers through a series of deliberate deceptions and fabrications.”
Authorities say Watson and his business partners, between 2018 and 2021, attempted to defraud investors and lenders of “tens of millions of dollars through misrepresentations and fraudulent omissions” on the company’s debts and other key financial information.
On several occasions, the US attorney’s office said, Watson and his colleagues pretended to be other media executives to cover up previous false statements.
If convicted, Watson faces at least two years in prison, with a maximum of 37 years, the US attorney’s office said.
The SEC’s civil complaint, also filed in the US District Court in Brooklyn, accuses Watson and the company of violating the anti-fraud provisions of the federal securities laws.
“We allege that over the course of several years the defendants collected approximately $50 million from victimized investors based on fraudulent records and repeated misrepresentations, including, in at least one case, misrepresenting a potential business partner during a meeting with a bank investor,” said Gurbir S. Grewal, chief executive officer of the SEC.
The agency, whose regulatory responsibilities include investor protection, accused Ozy officials of “regularly and purposely” presenting potential investors with dubious financial information, including a false claim that the company’s revenues were at least double what they actually were.
Additionally, the SEC said, Watson and Rao also sought investment by telling prospective investors they were securing money from high-profile companies and investors.
In one case, the SEC and federal prosecutors argue, Watson and Rao launched a ploy in which Rao impersonated a YouTube executive to convince a potential investor that he was getting licensing revenue from the online video-sharing giant.
When the potential investor discovered the alleged ploy, Watson said Rao was suffering from a “mental health crisis,” the SEC said.
