Ozy Media CEO Carlos Watson was arrested Thursday on fraud charges after his co-founder of the embattled media company pleaded guilty to similar charges earlier this week.
Watson, 53, had been the subject of a federal investigation since a lawsuit in 2021 alleged he misled investors while trying to resurrect his flailing media company.
Watson was arraigned Thursday afternoon in Brooklyn on charges of securities fraud and conspiring to commit wire fraud. A law enforcement source told The Daily Beast that Watson was taken into custody by the FBI at the Hotel NH Collection on 38th Street in Manhattan on Thursday morning.
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The maximum possible sentence for Watson, if convicted, would be 37 years behind bars. The minimum sentence would be 2 years.
“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,” said United States Attorney Breon Peace in a statement.
Watson’s lawyer, Lanny Breuer, said he was “really disappointed” in the feds’ decision to order an arrest.
“We have been acting in good faith and believe we had a constructive dialogue with the government and are shocked by the actions this morning,” Breuer told the Wall Street Journal.
Ozy has been under public scrutiny since a New York Times report in 2021 revealed that its then-chief operating officer, Samir Rao, impersonated a YouTube executive during a fundraising call with Goldman Sachs.
Rao reportedly told potential investors that YouTube had a great relationship with Ozy and that the company’s videos were receiving significant views on the platform, which was an exaggeration. The deception didn’t pay off, with Goldman Sachs deciding against investing.
Rao pleaded guilty this week to fraud and identity theft charges in a Brooklyn federal court, the Wall Street Journal reported.
In court, Rao reportedly admitted that he repeatedly misled investors and inflated Ozy’s financial performance between 2018 and 2021. He also confessed that he faked his identity between February 2020 and February 2021—an admission that appears to confirm his failed plan to dupe investors as a YouTube executive.
Suzee Han, the Ozy’s former chief of staff, pleaded guilty on Feb. 14 to fraud conspiracy charges, telling a magistrate judge that she falsified financial information at the behest of two unnamed executives.
An detention memo for Watson, obtained by The Daily Beast, said that Watson is accused of scheming with other execs to “defraud Ozy’s investors, potential investors, potential acquirers, lenders and potential lenders” out of “tens of millions of dollars” by lying about financial info and misrepresenting audience numbers.
The memo said Watson claimed to investors that Ozy had minimal debt while, in actuality, it was “drowning in debt and on the verge of insolvency.”
Watson’s indictment said he once told Ozy investors the company was poised to achieve $22 million in revenue in 2018—something he knew was not possible, the complaint said. In another instance, Watson allegedly told investors the company had booked $14 million in revenue for the year, despite learning earlier that week the real total was near $8.1 million.
Among those fooled by Ozy’s alleged lies was actress Sharon Osbourne, who confirmed to CNBC that her family invested in the startup based on false promises.
Watson, a former MSNBC and CNN anchor, launched Ozy in 2013 along with Rao. It quickly raised millions of dollars in funding as it positioned itself as an online magazine.
Ozy appeared to be all-but shut down in October 2021 after news of the YouTube executive fiasco crippled the company. Still, Watson defended Ozy and insisted the scandals wouldn’t be the end of the company.
Watson stuck with his declaration, with Semafor reporting on Feb. 9 that Watson’s resurrection attempts included the return of “Ozy Fest”—a music and ideas festival—for sometime this year in Miami.
