Ozy Media CEO Carlos Watson Arrested, Charged With Securities Fraud

Carlos Watson, CEO of digital media and entertainment company Ozy Media, was arrested Thursday in New York ahead of his arraignment on charges of federal securities fraud and wire fraud.

The Justice Department’s indictment charges Ozy Media and Watson with conspiracy to commit securities fraud and conspiracy to commit wire fraud in connection with a scheme to defraud Ozy’s investors and lenders “by making material misrepresentations about Ozy’s financial and business assets,” the U.S. Attorney’s Office for the Eastern District of New York said in a statement. Watson is also charged with “aggravated identity theft” for his role in the impersonation of multiple media company executives in communications with Ozy’s lenders and prospective investors in furtherance of the fraud schemes, prosecutors said. (A copy of the indictment is available at this link.)

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The feds alleged that Watson and his co-conspirators — including former Ozy chief operating officer Samir Rao and ex-chief of staff Suzee Han — “orchestrated a scheme to defraud investors in and lenders to Ozy of tens of millions of dollars through fraudulent misrepresentations and omissions about key aspects of Ozy’s business, including Ozy’s financial results, debts and audience size.”

Watson is scheduled to be arraigned later Thursday before Magistrate Judge Cheryl Pollak of the U.S. District Court for the Eastern District of New York in Brooklyn. If convicted, Watson faces a mandatory minimum sentence of two years in prison and a maximum sentence of 37 years’ imprisonment, the U.S. Attorney’s Office said.

Watson’s attorney, Lanny Breuer, said in a statement to Variety, said, “I am deeply disappointed by the events of today. We were engaged in a good faith and constructive dialogue with the government. Given the [Justice] Department’s claims of promoting such dialogue, I do not understand the dramatic decision to arrest Carlos today.”

The Wall Street Journal first reported the media exec’s arrest. Ozy Media did not respond to requests for comment. The company’s business has encompassed digital newsletters, TV productions, podcasts and live events, the most prominent of which was the Ozy Fest festival.

In September 2021, the New York Times reported that Ozy Media falsified audience metrics and that COO Samir Rao impersonated a YouTube executive on a call with prospective investor Goldman Sachs. The revelations led to other disclosures including allegations of a toxic workplace culture at the company, which is based in Mountain View, Calif.

“As alleged, Carlos Watson is a con man whose business strategy was based on outright deceit and fraud — he ran Ozy as a criminal organization rather than as a reputable media company,” Breon Peace, U.S. Attorney for the Eastern District of New York, said in announcing Watson’s arrest and indictment.  “Investment fraud undermines confidence in our nation’s markets and investors and makes it harder for honest businesses to compete. Our Office and the Department of Justice have made it clear that prosecuting corporations and their corrupt executives who flagrantly violate the law are top priorities.”

The Justice Department said former Ozy executives Rao and Han previously pleaded guilty to charges relating to their roles in the scheme. The Securities and Exchange Commission is taking “concurrent enforcement action” in the case, prosecutors said.

According to the federal indictment, in December 2019, Watson attempted to induce a bank to lend Ozy Media money by directing Ozy’s then-CFO to send the bank a fake contract between Ozy and a cable network purporting to be for a second-season renewal of one of the media company’s shows. When the CFO refused, Rao, with Watson’s approval, sent the fake contract with a forged signature — which contained terms favorable to Ozy — to the bank, copying the then-CFO, according to prosecutors. Later that day, the CFO notified Watson and Rao that she was resigning effective immediately, saying that what they had done was “illegal” and represented fraud, per the indictment.

“To conceal the lies about Ozy’s relationship with the cable network and the status and terms of their agreement, Rao, with Watson’s approval, created a fake email address in the name of an actual executive of the cable network, which Rao used to impersonate the executive and communicate with the bank about the potential loan,” according to the Justice Department. The cable network and bank in question were not identified.

Meanwhile, from about November 2020 through February 2021, Watson and his co-conspirators attempted to induce an unnamed financial institution to invest up to $45 million in Ozy “by means of material misrepresentations and omissions regarding Ozy’s historical and projected financial results, debts and business relationships,” according to prosecutors. If the $45 million investment had occurred as intended, $6 million of that would have been paid to Watson personally, the Justice Department alleged.

Watson told the financial institution that a “well-known online video service” — evidently YouTube — had paid Ozy nearly $6 million in licensing revenue for his talk show, “The Carlos Watson Show.” That was false, according to prosecutors; because Ozy did not in fact have any business relationship with the online video service, Watson and Rao “agreed that Rao would impersonate a media executive at the online video service in communications with the financial institution.” On or about Feb. 2, 2021, Rao held a call with employees of the financial institution “during which he impersonated a media executive from the online video service using a voice alteration application that he downloaded onto his cellular telephone to mask his voice during the call,” the Justice Department said. During that call, Watson was in the same room as Rao and texted Rao instructions about what to say and what not to say on the call, prosecutors alleged. When staffers at the financial institution later confronted Watson about the deception, he falsely claimed that Rao “had acted alone and as a result of a mental breakdown,” according to the indictment.

The 2021 reports of Ozy Media’s alleged misconduct led to the resignation of chairman Marc Lasry, owner of the Milwaukee Bucks and head of a hedge fund that raised $35 million in funding for Ozy in 2019. In addition, A&E dropped a production it had in the works with Ozy Media and Katty Kay, a former BBC News anchor and correspondent, announced her exit from Ozy after just three months.

Following the damaging revelations, Ozy’s board on Oct. 1, 2021, had said the company was shutting down. Three days later, Watson announced that the Ozy board had changed its mind and that the company was “open for business.”

Watson in 2013 co-founded Ozy Media, described as “a multiplatform media company that aims to help curious people see a broader and bolder world.” Investors in Ozy included Laurene Powell Jobs’ Emerson Collective; a rep for Emerson Collective did not respond to a request for comment.

Watson had stints as a political commentator and host at CNN and MSNBC before founding Ozy, named after Percy Bysshe Shelley’s famous poem “Ozymandias.” The company said “The Carlos Watson Show” centered on “bold, impactful conversations with culture-defining celebrities, intellectual pioneers and changemakers, spotlighting the voices you need to hear to make sense of this important time in American history.” After college, Watson had worked at McKinsey & Co. before founding education company Achieva College Prep Services, which he later sold to the Washington Post Co., according to his official bio.

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