Ozy Media CEO touted fake $600-million buyout offer, feds say
Ozy Media Chief Executive Carlos Watson lied to an investor that his company had received a $600-million takeover offer from a large tech company, federal prosecutors said in a wide-ranging fraud indictment against the startup and its boss.
Watson, of Mountain View, Calif., was arrested by FBI agents Thursday morning at a Midtown Manhattan hotel on charges that he conspired to defraud investors out of tens of millions of dollars, Brooklyn U.S. Atty. 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 U.S., Arlo Devlin-Brown, a lawyer for Watson, said in court Thursday.
The U.S. Securities and Exchange Commission also filed a related suit against Watson, Rao and Han alleging securities fraud on Thursday.
LifeLine Legacy Holdings said in a fraud suit that it invested in Ozy partly because its co-founders claimed Goldman Sachs was about to put money in the company.
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 many 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 the guilty pleas by Rao and Han.
Ozy, a once-highflying media startup backed by billionaire Marc Lasry, was sent into a 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. 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 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 in a fraud that spanned from 2018 to 2021, prosecutors said. 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 the most brazen lies alleged 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.
With investors and advertisers walking away and an investigation pending, Ozy Media is closing, the board said in a statement Friday.
Watson is accused of directing 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.”