Ozy Media founder Carlos Watson arrested on fraud charges

Ozy Media founder Carlos Watson arrested on fraud charges: On Thursday, Carlos Watson, the founder of troubled digital start-up Ozy Media was arrested on federal fraud charges as part of a scheme prosecutors allege was designed to rescue the financially distressed business.

Federal agents arrested Watson at a Manhattan hotel after two of Ozy’s top executives, including its then-chief operating officer Samir Rao, pleaded guilty this month to fraud charges related to impersonating YouTube executives during an investor pitch to Goldman Sachs.

US authorities have charged Carlos Watson, the founder of digital media start-up Ozy Media with perpetrating a fraudulent scheme to defraud its investors and lenders of millions of dollars.

Watson, 53, was arrested at a Manhattan hotel on Thursday morning by law enforcement sources on suspicion of conspiracy to commit securities and wire fraud as well as aggravated identity theft, according to the US Department of Justice. He reportedly denied all wrongdoing when arrested at his desk at work that day.

An indictment filed in Brooklyn federal court alleges Ozy Media, Watson, and other colleagues from 2018 until 2021 engaged in numerous fraudulent practices to deceive lenders, investors, and potential acquirers by misrepresenting information regarding the company’s debts, financial results, and audience numbers.

“Carlos Watson is accused of running Ozy as a criminal enterprise rather than as an established media company,” declared Breon Peace, US attorney for the eastern district of New York.

Ozy made a name for itself in 2013 as one of the promising digital media start-ups such as Vice and BuzzFeed, raising money from investors such as Axel Springer’s organization the Emerson Collective, and Laurene Powell Jobs’ organization the Emerson Collective. Along the way, it attracted an impressive array of board members and media contributors over time, including former BBC journalist Katty Kay and hedge fund manager Marc Lasry.

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Ozy’s business collapsed in 2021 when media reports claimed its chief operating officer, Samir Rao, impersonated a YouTube executive to raise $40mn from Goldman Sachs. Ozy eventually admitted to Rao’s impersonation but attributed it at the time to a “mental health episode” experienced by Rao.

According to the indictment, Watson was present during the call with Rao and texted him instructions on what to say.

A New York Times report in 2019 cast doubt upon Ozy’s claim of 50mn unique users per month, as data from comScore, which measures online engagement, showed figures at only a fraction of that level.

Authorities allege Watson and others made numerous efforts to mislead investors about how much money Ozy was making. According to the indictment, they falsely claimed Ozy Media’s revenues had doubled from 2016 to 2017 when in reality there had been nearly no growth and revenues totaled less than $7mn in 2017. They later declared revenue of $22mn for 2018, even though internal documents showed revenue was below $11mn for that year, per the indictment.

In a separate civil complaint, the Securities and Exchange Commission has accused Watson, Ozy Media, and two former executives of “systematically and purposely” providing investors with false financial data that artificially increased their annual revenue by “at least 100 percent”.

Gurbir Grewal, Director of Enforcement for the SEC, stated that during the course of their alleged scheme “the defendants raised approximately $50mn from victim investors using fraudulent documents and misrepresentations”, according to allegations made by Grewal.

If convicted on these federal criminal charges, Watson could face up to 37 years in prison. Lanny Breuer, Watson’s attorney, expressed disappointment with today’s events: “We had been engaged in a good faith and constructive dialogue with the government; given [the Department] of Justice’s claims of promoting such dialogue, I do not understand why they made an abrupt arrest today.”

Prosecutors noted that Rao and Suzee Han, a former Ozy employee, have both already admitted their roles in the scheme.

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