Ozy Media founder Carlos Watson denies federal fraud charges

The founding father of the troubled digital start-up Ozy Media pleaded not responsible Thursday to federal fraud prices accusing him of scheming to prop up his financially struggling firm, which hemorrhaged thousands and thousands of {dollars} earlier than it shut down amid revelations of probably misleading business practices.

Federal brokers arrested Carlos Watson at a Manhattan lodge earlier within the day after two of the corporate’s prime executives pleaded responsible this month to fraud prices, together with Ozy’s then-chief working officer, Samir Rao, who prosecutors say impersonated a YouTube govt throughout a pitch to Goldman Sachs, a possible 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 additionally charged with identification theft for his function within the impersonation of a number of media executives.

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

Ozy marketed itself as a progressive digital platform for “the New and the Next,” saying on its web site 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 corporate with Rao in California’s Silicon Valley a decade in the past.

But the corporate imploded underneath insurmountable debt and questions over its fundraising ways. As its bills mounted, it relied on high-interest loans and commenced to extra aggressively court docket traders.

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

Shortly after, Ozy mentioned it was shutting down – though Watson has since tried to revive the endeavor.

Watson’s legal professional, Lanny Breuer, mentioned he was “deeply disappointed by the arrest” and thought that “good faith and progressive dialogue” with the federal government have been progressing.

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

Watson was launched following his arraignment after posting $1 million bond. He is anticipated to subsequent seem in court docket April 3. Company representatives are again in court docket March 8.

Rao pleaded responsible in federal court docket this week, whereas Ozy’s former chief of employees, Suzee Han, did so final week. Both have been launched on bail to await sentencing. The responsible pleas and arrests have been first reported by the Wall Street Journal.

In a press release posted on its web site Thursday, the SEC mentioned Rao and and Han “agreed to resolve the charges against them.”

Authorities say Watson and his business companions, between 2018 and 2021, tried to defraud traders and lenders of “tens of millions of dollars through fraudulent misrepresentations and omissions” in regards to the firm’s money owed and different key monetary info. At one level, the indictment alleges, the corporate used a cast contract to assist win a mortgage from a financial institution.

“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, mentioned in a press release. “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 subject workplace added that Watson “repeatedly attempted to entice both investors and lenders through a series of deliberate deceptions and fabrications.”

If convicted, Watson faces a minimum of two years in jail as much as a most of 37 years, the U.S. legal professional’s workplace mentioned.

The SEC’s civil grievance, additionally filed within the U.S. District Court in Brooklyn, accuses Watson and the corporate of violating anti-fraud provisions of federal securities legal guidelines.

“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,” mentioned Gurbir S. Grewal, the SEC’s director of enforcement.

The company, whose regulatory obligations embody defending traders, accused Ozy officers of “routinely and purposely” presenting potential traders with doubtful monetary info, together with falsely claiming that the corporate’s revenues have been a minimum of twice what they really have been.

In addition, the SEC mentioned, Watson and Rao additionally sought investments by allegedly telling potential traders that they have been securing cash from high-profile corporations and traders.

In one case, the SEC and federal prosecutors contend, Watson and Rao launched a ruse that had Rao impersonating a YouTube govt to persuade a potential investor that it was getting licensing income from the web video-sharing behemoth.

When the potential investor found the alleged ploy, Watson asserted that Rao was affected by a “mental health crisis,” the SEC mentioned.