Carlos Watson, founder of Ozy Media, has denied the federal fraud charges

NEW YORK (AP) — The founder of troubled digital start-up Ozy Media pleaded not guilty Thursday to federal fraud charges accusing him of plotting to shore up his financially troubled company, which bled millions of dollars before shutting down amid revelations that it might have happened. Deceptive business practices.

Federal agents arrested Carlos Watson at a Manhattan hotel earlier in the day after two of the company’s top executives pleaded guilty this month to fraud charges, including Ozzy’s then COO Sameer Rao, who prosecutors say he impersonated. A YouTube executive during a promotion. Goldman Sachs, potential investor.

The indictment was unsealed Thursday in US District Court in Brooklyn and accuses Watson and Ozzy Media of conspiracy to commit securities fraud and wire fraud. Watson is also accused of identity theft for his role in impersonating several media executives.

In a parallel civil case, the SEC also charged Watson and the company with defrauding investors of approximately $50 million “through repeated misrepresentations of the company’s underlying financial condition, business relationships, and fund-raising efforts.”

Ozy advertises itself as a progressive digital platform for “what’s new and what’s next”, saying on its website that it seeks to create “a space for fresh perspectives, introducing you to rising stars and breaking trends, and bringing fresh ideas to everything from news and tech and business culture to learning and entertainment”.

Watson, a former MSNBC and CNN host, co-founded the company with Rao in California’s Silicon Valley a decade ago.

But the company imploded under the weight of insurmountable debt and questions about its fundraising tactics. As his expenses mounted, he relied on high-interest loans and began attracting investors more aggressively.

The scrutiny deepened after The New York Times reported in October 2021 that an Ozy official masqueraded as a YouTube executive in a failed attempt to persuade Goldman Sachs to pour money into the ailing institution.

Soon after, Ozzy said it was closed – though Watson has since tried to revive the endeavor.

Watson’s attorney, Lanny Brewer, said he was “deeply disappointed by the arrest” and believed “good faith and a progressive dialogue” with the government was proceeding.

“Given the government’s allegations of promoting such dialogue in general, I simply do not understand the dramatic decision to arrest Carlos this morning,” Brewer said.

Watson was released after being charged after posting a $1 million bond. He is expected to appear in court on April 3. Company representatives returned to court on March 8.

Rao pleaded guilty in federal court this week, while Susie Han, Ozzy’s former chief of staff, pleaded guilty last week. They were released on bail pending the verdict. The Wall Street Journal was first to report the guilty pleas and arrests.

The SEC said in a statement posted on its website Thursday that Rao and Han “have agreed to settle the charges against them.”

Authorities say that, between 2018 and 2021, Watson and his business partners attempted to defraud investors and lenders of “tens of millions of dollars through fraudulent misrepresentations and omissions” about the company’s debt and other key financial information. The indictment alleges that at one point the company used a fraudulent contract to help win a loan from a bank.

“As alleged, Carlos Watson is a con man whose business strategy was based on outright deception and fraud,” Brion Pace, the Brooklyn-based US Attorney for the Eastern District of New York, said in a statement. “He ran Ozzie like a criminal organization, not a big media company.”

Michael J. Driscoll, assistant director in charge of the FBI’s New York field office, added that Watson “has repeatedly tried to lure both investors and lenders through a series of premeditated deceptions and fabrications.”

If convicted, Watson faces a minimum of two years in prison and a maximum of 37 years, the US Attorney’s Office says.

The SEC’s civil complaint, which was also filed in the US District Court in Brooklyn, accuses Watson and the company of violating anti-fraud provisions of the federal securities laws.

“We allege that over several years, Defendants amassed approximately $50 million from victim investors on the basis of fraudulent documents and repeated misrepresentations, including, in at least one case, falsely impersonating a potential business partner during a meeting with an investment Grewal. , Executive Director of the SEC.

The agency, whose regulatory responsibilities include protecting investors, accused Ozy officials of “routinely and knowingly” providing questionable financial information to potential investors, including falsely claiming that the company’s revenue was at least twice as high as it actually was.

In addition, the SEC said, Watson and Rao also sought investments by telling potential investors that they were securing money from companies and high-profile investors.

In one case, the SEC and federal prosecutors asserted that Watson and Rao launched a stunt in which Rao impersonated a YouTube executive to convince a potential investor that he was getting licensing royalties from the online video-sharing giant.

When the potential investor discovered the alleged scam, the SEC said, Watson confirmed that Rao was suffering from a “mental health crisis.”