MANHATTAN (CN) - Newsweek’s former parent company was arraigned Thursday afternoon on charges that it kept the magazine afloat through a $10 million fraud.
In addition to IBT Media Inc., aka Newsweek Media Group, the 10-count indictment unsealed late Wednesday takes aim at IBT co-founder Etienne Uzac; the Christian Media Corp.; that company’s former chief executive and publisher, William Anderson; and a computer company named Oikos Networks.
Justice James Burke presided over their arraignment today in Manhattan Criminal Court, where the defendants are charged with scheming to defraud, conspiracy and money laundering. Anderson, Uzac, IBT and Christian Media are accused of falsifying business records, and Anderson and Christian Media are charged additionally with criminal contempt.
Baker Botts attorney Andy Lankler represents Anderson; Susan Hoffinger represented Christian Media; and Marc Agnifilo of Brafman & Associates represents Uzac and IBT.
Prosecutors contend that the defendants sought loans for high-capacity computer servers but ended up buying fewer, cheaper servers than they had promised the lenders they’d purchase. According to the indictment they funneled the extra money through accounts they controlled, and created a fake Staten Island auditor whom they named “Karen Smith,” even creating a website for her.
This scheme lasted from March 2015 to October 2018, and District Attorney Cyrus Vance noted in a statement Thursday that the defendants also “used the name of a storied Manhattan-based media company to further their financial criminal activity.”
“Etienne Uzac and his co-defendants are charged with conspiring to secure millions in funding that never would have come had they been honest about Newsweek’s financial health,” Vance added.
Assistant District Attorney Solomon Shinerock emphasized in court meanwhile that Newsweek itself has not been indicted. The publication split from IBT and went solo in September.
Shinerock said the defendants engaged in “Ponzi scheme-like financial transactions” by paying back lenders with newly defrauded funds. The source of funds for repayments came largely from overseas accounts in the U.K. and China, Shinerock added.
Defense Attorney Agnifilo said Uzac and Anderson turned themselves in this morning, with their passports, and were released on $250,000 bail.
Vance contends that their role in the conspiracy involved inducing lenders to extend financing by overstating the financial health of Newsweek and Christian Media.
When state investigators armed with a search warrant raided Newsweek’s offices and seized servers back in January, Newsweek itself published an exposé in February and then several staffers were fired, causing an uproar.
“Once it was clear that the scheme was under investigation,” Shinerock said in court Thursday, “the defendants made efforts to pay down the loans.”
The prosecutor lambasted the defendants for what he said was an “extraordinary lack of cooperation” during the investigation.
According to the indictment, Oikos pretended to be an independent equipment vendor, and provided lists showing the prices, between $130,000 and $180,000, of Dell servers. But the servers they ultimately provided to Newsweek and the Christian Media Corporation were allegedly “fewer in number and inferior in quality.”
Then Oikos transferred “nearly all” of the lenders’ funds to bank accounts controlled by the other defendants and unindicted co-conspirators, the indictment continues.
Prosecutors say the defendants used a portion of the laundered funds to pay back previous lenders to keep up a good credit profile.
Referencing longstanding criticism against prosecutor Vance for his handling of sexual-assault allegations against Hollywood heavyweight Harvey Weinstein, Uzac tweeted on Wednesday meanwhile that the charges are retaliatory.
“I believe this very aggressive investigation is fueled by retaliation against me and my news media company for having uncovered that the Manhattan District Attorney Cy Vance Jr. declined to press charges against Harvey Weinstein after his attorney paid Vance money,” he wrote. “The firestorm that ensued badly bruised the DA’s office, led his office to be investigated by the New York Attorney General and almost cost him his re-election.”
Uzac also called it unconstitutional “no matter what the circumstances” for the government to raid a media company’s servers.
Former IB Times reporter Jay Cassano meanwhile has countered Uzac’s narrative. “It's my and @davidsirota's reporting series on Cy Vance that the co-founder of IBT Media, which bought Newsweek, is claiming below inspired a politically-motivated indictment for fraud,” tweeted Cassano, who now writes for Sludge. “I do not believe this to be true.”
Cassano tweeted later that Uzac used his reporting “in [sic] attempt to construct the flimsiest of defenses for his alleged money laundering.”
Agnifilo would not comment Thursday on Uzac’s statement.
Weinstein coincidentally was also in Manhattan Criminal Court on Thursday, having persuaded a judge to dismiss one of six counts against him. Uzac’s lawyer, Agnifilo, is a senior trial counsel at the firm of Weinstein’s lawyer, Benjamin Brafman.
The IB Times is owned by defendant IBT, as are Medical Daily and Latin Times.
Agnifilo was positive in an interview Thursday afternoon. “We have a quick motion schedule, which I think is good,” he said. “And we think the evidence is legally insufficient.”
The parties will return to court on Jan. 16, 2019 at 9:30 a.m.
Subscribe to Closing Arguments
Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.
