Ozy Media founder Carlos Watson arrested on fraud charges

The founder of digital media start-up Ozy Media, Carlos Watson, has been charged with what US authorities described as a scheme to defraud the company’s investors and lenders of millions of dollars.

Watson, 53, faces charges of conspiracy to commit securities and wire fraud as well as aggravated identity theft, according to the US Department of Justice. He was arrested at a Manhattan hotel on Thursday morning, according to a law enforcement source.

The indictment in Brooklyn federal court alleges Ozy Media, Watson and other colleagues from 2018 until 2021 made numerous efforts to defraud lenders, investors and potential acquirers by misrepresenting information on the company’s debts, financial results and audience numbers.

“As alleged, Carlos Watson is a conman whose business strategy was based on outright deceit and fraud — he ran Ozy as a criminal organisation rather than as a reputable media company,” said Breon Peace, US attorney for the eastern district of New York.

Ozy had pitched itself in 2013 as one of a promising group of digital media start-ups such as Vice and BuzzFeed. The company raised money from investors including Axel Springer and Laurene Powell Jobs’ organisation, the Emerson Collective. It attracted a star-filled roster of board members and media contributors over the years, including former BBC journalist Katty Kay and hedge fund manager Marc Lasry.

But Ozy imploded in 2021 after a media report that the company’s chief operating officer, Samir Rao, impersonated a YouTube executive in an effort to raise $40mn from Goldman Sachs. Ozy admitted to the impersonation, attributing it at the time to a “mental health episode” experienced by Rao.

According to the indictment, Watson was in the same room as Rao during the call and texted him instructions on what to say.

A New York Times report also questioned Ozy’s claim in 2019 that it reached 50mn unique users a month and compared that to data from comScore, which measures online engagement, showing figures at a fraction of that level.

Authorities alleged Watson and others made numerous efforts to mislead investors about how much money Ozy was making. At one point, Watson and others allegedly claimed Ozy Media had doubled its revenues from 2016 to 2017 to approximately $12mn when in reality there had been nearly no growth and revenues totalled less than $7mn in 2017. They later claimed revenue of $22mn in 2018, despite internal documents showing revenue of less than $11mn, according to the indictment.

The Securities and Exchange Commission has also filed a parallel civil complaint accusing Watson, Ozy Media and two former executives of “routinely and purposely” presenting investors with false financial information that inflated the company’s annual revenue by “at least 100 per cent”.

Over the course of the alleged scheme, “the defendants raised approximately $50mn from victim investors on the basis of fraudulent documents and repeated misrepresentations”, said Gurbir Grewal, the SEC’s Director of Enforcement.

If convicted on the federal criminal charges, Watson faces up to 37 years in prison. A lawyer for Watson, Lanny Breuer, said he was “deeply disappointed by the events of today,” adding: “We were engaged in a good faith and constructive dialogue with the government. Given the Department [of Justice]’s claims of promoting such dialogue, I do not understand the dramatic decision to arrest Carlos today.”

Rao and another former Ozy employee, Suzee Han, have already pleaded guilty in connection with their roles in the scheme, prosecutors said.

Ozy Media did not immediately respond to a request for comment.