Ozy Media Inc. Chief Executive Officer Carlos Watson lied to an investor that his California-based company had received a $600 million takeover offer from a large tech firm, federal prosecutors in New York said in a wide-ranging fraud indictment against the startup and its boss.
(Bloomberg) — Ozy Media Inc. Chief Executive Officer Carlos Watson lied to an investor that his California-based company had received a $600 million takeover offer from a large tech firm, federal prosecutors in New York said in a wide-ranging fraud indictment against the startup and its boss.
Watson, of Mountain View, California, was arrested by FBI agents Thursday in Manhattan on charges that he conspired to defraud investors out of tens of millions of dollars, Brooklyn US Attorney Breon Peace said. Meanwhile, Ozy’s former chief operating officer, Samir Rao, and its chief of staff, Suzee Han, secretly pleaded guilty to fraud and other charges, court records show.
“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 Thursday in announcing the charges.
Watson, who earned degrees at Harvard and later Stanford Law School, pleaded not guilty late Thursday and was released on $1 million bond.
Watson “has consistently run Ozy as a fraud at every step,” prosecutor Jonathan Siegel argued at the arraignment. He said Watson could commit further crimes if he was allowed to return to Ozy. “It’s not appropriate for him to continue to run the company.”
Watson, who was also accused of impeding federal investigators, was directed by a judge not to contact employees who are witnesses in the case. One such employee, Rao, is cooperating with the US, said Arlo Devlin-Brown, a lawyer for Watson said in court Thursday.
The US Securities and Exchange Commission also filed a related suit against Watson, Rao and Han for securities fraud on Thursday.
Directed Impersonation
Defense lawyer Lanny Breuer said he was “deeply disappointed” by Watson’s arrest. “We were engaged in a good faith and constructive dialogue with the government,” Breuer said. “Given the department’s claims of promoting such dialogue, I do not understand the dramatic decision to arrest Carlos today.”
Watson faces as long as 37 years in prison if convicted of all charges, Peace said.
Lawyers for Rao and Han couldn’t be reached for comment. The Wall Street Journal first reported Watson’s arrest and guilty pleas by Rao and Han.
Ozy, a once high-flying media startup backed by Marc Lasry, was sent into tailspin after the New York Times reported that Rao impersonated a YouTube executive to tout the company during a February 2021 call with Goldman Sachs Group Inc. The startup was seeking a $40 million investment from Goldman at the time.
Watson claimed in 2021 that the impersonation was due to a mental health crisis on Rao’s part, but prosecutors said Thursday that Watson was “in fact present on the call as it occurred and was texting Rao directions of what to say.”
That was one of many lies Watson told investors and lenders, prosecutors said, in a fraud that spanned between 2018 and 2021. Though Watson knew Ozy was frequently drowning in debt and on the verge of insolvency, he presented Ozy to investors and lenders as a successful business with minimal debt, according to the indictment.
‘Sleep On It’
Among his most brazen alleged lies was a claim that an unidentified tech company had offered to acquire Ozy, prosecutors said. Watson used the claim to try to convince an unnamed investor to commit $22.5 million in a Series D fundraising.
Watson allegedly directed Rao to send an April 2021 presentation to the investor showing that the tech company would lead the round with a $30 million investment. Watson later followed up with the investor and claimed the tech company wasn’t going to participate because it wanted to acquire Ozy for $600 million instead, according to the indictment.
“Told him I would sleep on it,” Watson allegedly texted Rao after speaking to the investor. “I think we go back and say we are going to say no to [Technology Company 1] (at least for now), so a smaller Series D so we avoid rampant dilution. Take in $40M including their $20M — and maybe some debt. Let’s talk when you can.”
The case is US v Watson and Ozy Media Inc, 23-CR-82 US District Court, Eastern District of New York (Brooklyn).
(Updates with Watson’s not guilty plea to US charges in fourth paragraph)
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