BROOKLYN (CN) — The federal government brought a criminal indictment Thursday against the fallen digital media company Ozy Media, saying its executives impersonated leaders of other media groups and lied about the company’s finances to scam investors out of tens of millions of dollars.
In a federal one-two punch, prosecutors announced securities and wire fraud conspiracy charges against Ozy and its Chief Executive Officer Carlos Watson within hours of the U.S. Securities and Exchange Commission filing a lawsuit that says the company lied to investors about business relationships, finances and fundraising.
FBI agents arrested Watson Thursday morning at the Hotel NH Collection in Manhattan. Facing individual charges of aggravated identity theft, Watson appeared Thursday afternoon in Brooklyn Federal Court. He was released on a $1 million bail packaged secured by his home in Mountain View, California, and the signature of his two sisters, who joined the hearing remotely. One of Watson's sisters, Beverly Watson, is an Ozy employee and said she makes $300,000 a year working at the small outfit.
With an exception as to his sister, Watson may not contact Ozy employees or investors as part of his release agreement, a condition U.S. Magistrate Judge Cheryl Pollak imposed over protest by Watson's employees.
“To allow your client continued unfettered access to his employees and to the investors is just basically saying, OK, go back and do what you were doing,” Pollak said. The judge will consider another proposal from defense counsel that would limit Watson's contact to workers only on the creative, not financial, side.
Samir Rao, Ozy’s former chief operating officer, and Suzee Han, onetime chief of staff, are cooperating with the government after having separately pleaded guilty to charges earlier this month — but both are named along with Watson in the separate SEC complaint.
Rao was at the center of a bizarre 2021 report in The New York Times that immediately preceded Ozy’s downfall. The Times revealed that Rao had sneaked into a conference call with Goldman Sachs, posing as a YouTube executive. In the meeting, Rao claimed that Ozy was doing gangbusters on the video-streaming website, pulling in lots of ad money and was served well by Watson’s leadership.
After a YouTube investigation implicated Rao, who used voice alteration during the call, Watson apologized to Goldman, the Times reported. He characterized the incident with Rao as stemming from a mental health crisis. Ozy shut down less than a week later.
Charging documents appear to retell that story while omitting Goldman’s name.
Prosecutors say the executives also tried to get a bank loan based on projected revenue from the second season of an Ozy television show before the program’s return had been confirmed, with the help of a phony contract between Ozy and an unnamed cable network. It prompted the chief financial officer at the time to resign, according to court documents.
“[This] is illegal. This is fraud. This is forging someone’s signature with the intent of getting an advance from a publicly traded bank,” the financial executive wrote to Watson and Rao. “To be crystal clear, what you see as a measured risk — I see as a felony.”
Watson is also accused of trying to arrange a $6 million payout for himself as part of a $45 million investment that fell through.
U.S. Attorney Breon Peace said the company’s business approach rang illicit.
“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,” Peace said in a statement. “Investment fraud undermines confidence in our nation’s markets and investors and makes it harder for honest businesses to compete.”
If convicted Watson faces a mandatory prison sentence of two years, and a maximum 37-year sentence. He is represented by Arlo Devlin-Brown of Covington & Burling LLP and Ryan Poscablo of Steptoe & Johnson LLP.
In its civil securities complaint, the SEC charged the Ozy cohort with duping funders out of $50 million by feeding them financial details that inflated the company’s annual revenue by at least 100% and falsely claiming that well-known, sophisticated investors had signed on.
The civil suit also references Rao’s YouTube impersonation and said Watson was lying when he attributed it as a mental health crisis.
Gurbir S. Grewal, the SEC’s director of enforcement, said in a statement that the lawsuit “underscores that we will hold anyone accountable, even well-known media personalities, for misrepresentations that impact investors."
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