By Jack Queen
(Reuters) -Ozy Media and its CEO, Carlos Watson, have been criminally charged for scheming to defraud investors of tens of millions dollars by misrepresenting the company's debts, financial performance and audience size, Brooklyn federal prosecutors said Thursday.
Watson and Ozy Media are charged with securities fraud and wire fraud. Watson was arrested Thursday morning and pleaded not guilty during his first court appearance that afternoon. He was released on a $1 million bond.
Watson's lawyer, Lanny Breuer, said in a statement he had engaged in "good faith" dialogue with the government and was "deeply disappointed" with his client's "dramatic" arrest.
Lawyers for Ozy said in a statement that they had been discussing ways to resolve the matter without charges as recently as Wednesday and were "extremely disappointed" by the government's decision.
Watson's arrest comes two days after Samir Rao, a co-founder of his media company, pleaded guilty to similar charges in Brooklyn federal court.
Rao's lawyer, Ed Swanson, said in a statement that his client has accepted full responsibility and is "deeply remorseful, apologetic to those affected, and committed to making amends for his actions while at Ozy Media."
Prosecutors say Watson and his co-conspirators courted a $45 million investment from an unnamed financial institution using inflated numbers about its audience size, revenue and backing from other investors.
Watson and his co-conspirators are also accused of forging a contract and impersonating a cable network executive to secure a bank loan in 2019.
"As alleged, 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," Brooklyn U.S. Attorney Breon Peace said in a statement.
The alleged scheme involved a February 2021 ruse where Rao used a voice modulator to impersonate an executive of a streaming service during a call with potential investors, according to the indictment.
Court documents do not identify the lender or streaming service. The New York Times reported in September 2021 that Rao impersonated a YouTube executive during a fundraising call with Goldman Sachs (NYSE:GS).
Watson acknowledged the incident on Twitter at the time but denied wrongdoing and chalked Rao's behavior up to a mental health episode. Goldman did not ultimately invest, Watson said in the tweet.
Rao, who was initially charged under a pseudonym, pleaded guilty on Tuesday to securities fraud conspiracy, wire fraud conspiracy and identity theft.
The U.S. Securities and Exchange Commission separately filed a civil case against Ozy, Watson and Rao on Thursday.