Ozy Media, CEO Carlos Watson Charged With Fraud

Mr. Watson was arrested Thursday morning in a Manhattan hotel and accused of falsifying information about Ozy’s performance and inflating its projected earnings, in an effort to secure tens of millions of dollars in investments to offset the fledgling company’s mounting debt, according to an indictment unsealed Thursday. The U.S. attorney’s office in Brooklyn, N.Y., charged the company and Mr. Watson with conspiring to commit securities fraud and wire fraud.  

Mr. Watson’s arrest came after

Samir Rao,

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

Ozy came under federal scrutiny for its business practices after the New York Times reported in 2021 that Mr. Rao, its then-chief operating officer, impersonated an executive of

Alphabet Inc.’s

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 on the call was the result of a mental-health issue. 

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

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

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

A lawyer for Ozy said the company had been engaged in discussions with the government toward a potential resolution without criminal charges. 

“It is hard to understand the actions taken today in light of those discussions,” the lawyer, Jason Weinstein, said. 

Mr. Rao pleaded guilty 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 Brooklyn U.S. attorney’s office continued to investigate Ozy, court filings show. His case was unsealed Thursday after Mr. Watson’s arrest. 

“Mr. Rao has pled guilty and has accepted full responsibility for his actions,” his lawyers said in a statement. “He is deeply remorseful, apologetic to those affected and committed to making amends for his actions while at Ozy Media.”

Another former Ozy official pleaded guilty on Feb. 14 to fraud conspiracy charges. Suzee Han, the company’s former chief of staff, told a magistrate judge that she falsified financial information about the company at the direction of two executives. She didn’t identify the executives. Ms. Han was also allowed to enter her plea as a Jane Doe. Her lawyer declined to comment.

Mr. Rao and Ms. Han were each released on bond while they await their sentences later this year.

Ozy, which has published youth-focused articles, podcasts and videos about current events, launched in 2013 and has struggled to survive as it has 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 featured interviews with celebrities including Matthew McConaughey and Scarlett Johansson. 

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

Mr. Rao stepped down from his role at Ozy after the

New York Times

reported on his impersonation. Representatives from Goldman Sachs and YouTube didn’t immediately respond to requests for comment. 

The article also raised questions about discrepancies between Ozy’s stated audience size and its actual audience. At the time Mr. Watson called the reporting flawed, but Ozy lost advertisers, licensing fees and talent while also drawing 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 has struggled to regain its financial footing and at one point shrank to six full-time staff in addition to Mr. Watson, the company’s interim chief financial officer said in a court filing in October 2022. 

Ozy has survived on significantly discounted advertising fees, but the company mounted a modest turnaround through new production efforts and hires, 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 [email protected]

Mr. Watson was arrested Thursday morning in a Manhattan hotel and accused of falsifying information about Ozy’s performance and inflating its projected earnings, in an effort to secure tens of millions of dollars in investments to offset the fledgling company’s mounting debt, according to an indictment unsealed Thursday. The U.S. attorney’s office in Brooklyn, N.Y., charged the company and Mr. Watson with conspiring to commit securities fraud and wire fraud.  

Mr. Watson’s arrest came after

Samir Rao,

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

Ozy came under federal scrutiny for its business practices after the New York Times reported in 2021 that Mr. Rao, its then-chief operating officer, impersonated an executive of

Alphabet Inc.’s

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 on the call was the result of a mental-health issue. 

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

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

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

A lawyer for Ozy said the company had been engaged in discussions with the government toward a potential resolution without criminal charges. 

“It is hard to understand the actions taken today in light of those discussions,” the lawyer, Jason Weinstein, said. 

Mr. Rao pleaded guilty 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 Brooklyn U.S. attorney’s office continued to investigate Ozy, court filings show. His case was unsealed Thursday after Mr. Watson’s arrest. 

“Mr. Rao has pled guilty and has accepted full responsibility for his actions,” his lawyers said in a statement. “He is deeply remorseful, apologetic to those affected and committed to making amends for his actions while at Ozy Media.”

Another former Ozy official pleaded guilty on Feb. 14 to fraud conspiracy charges. Suzee Han, the company’s former chief of staff, told a magistrate judge that she falsified financial information about the company at the direction of two executives. She didn’t identify the executives. Ms. Han was also allowed to enter her plea as a Jane Doe. Her lawyer declined to comment.

Mr. Rao and Ms. Han were each released on bond while they await their sentences later this year.

Ozy, which has published youth-focused articles, podcasts and videos about current events, launched in 2013 and has struggled to survive as it has 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 featured interviews with celebrities including Matthew McConaughey and Scarlett Johansson. 

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

Mr. Rao stepped down from his role at Ozy after the

New York Times

reported on his impersonation. Representatives from Goldman Sachs and YouTube didn’t immediately respond to requests for comment. 

The article also raised questions about discrepancies between Ozy’s stated audience size and its actual audience. At the time Mr. Watson called the reporting flawed, but Ozy lost advertisers, licensing fees and talent while also drawing 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 has struggled to regain its financial footing and at one point shrank to six full-time staff in addition to Mr. Watson, the company’s interim chief financial officer said in a court filing in October 2022. 

Ozy has survived on significantly discounted advertising fees, but the company mounted a modest turnaround through new production efforts and hires, 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 [email protected]