Ozy Media founder Carlos Watson arrested for fraud scheme

The founder of the scandal-plagued US start-up Ozy Media has been arrested on federal fraud charges.

Carlos Watson's arrest came days after a former company executive, Samir Rao, pleaded guilty to fraud charges.

Ozy Media shut down in 2021 after a New York Times investigation found Mr Rao had attempted to deceive investors by impersonating a YouTube executive.

Federal prosecutors allege Mr Watson "directed a scheme to defraud investors" of millions of dollars.

The US Department of Justice and the Securities and Exchange Commission have also launched probes into the company.

A former Goldman Sachs banker and MSNBC host, Mr Watson founded Ozy Media in California in 2013. The company produced left-leaning podcasts, television series and events, and profiles of rising stars and emerging trends.

It was valued at $159m (£132m) in 2020.

According to federal court documents filed this week, however, Mr Watson knew Ozy Media was "drowning in debt", but lied to investors about the company's revenue and falsely claimed celebrities and high-profile companies had made investments.

Sharon Osborne, the wife of rock star Ozzy Osbourne, has accused Mr Watson of falsely claiming the couple had invested in the business, telling CNBC in 2021, "this guy is the biggest shyster I have ever seen in my life".

Mr Watson was taken into custody on Thursday and is expected to be arraigned in federal court in Brooklyn, New York, on charges of conspiring to commit securities fraud and conspiring to commit wire fraud, the Wall Street Journal first reported.

A lawyer for Mr Watson told NBC News that he was "deeply disappointed by the events of today".

"We were engaged in a good faith and constructive dialogue with the government," said lawyer Lanny Breuer.

"Given the department's claims of promoting such dialogue, I do not understand the dramatic decision to arrest Carlos today."

Ozy Media's downfall began after New York Times reporting revealed Rao had impersonated a YouTube executive during a call with Goldman Sachs, touting YouTube's successful relationship with Ozy as the bank was considering making an investment.

• Scandal-hit Ozy Media shut down

• Former BBC journalist quits US media firm

Mr Watson blamed the deception on what he described as Rao's mental health issues. He added that no harm was caused because Goldman Sachs did not ultimately decide to invest.

In this week's court filings, prosecutors allege Mr Watson was present during the call and was "texting Rao directions of what to say", despite previously denying to the media that he was there.

Mr Watson and Rao impersonated media company executives "on multiple occasions" to cover up fraudulent statements when faced with questions from investors, prosecutors claim.

Mr Rao pleaded guilty on Tuesday to securities fraud conspiracy, wire fraud conspiracy and identity theft and admitted to a judge that he made misleading statements to investors and inflated the company's finances.

The company's former chief of staff, Suzee Han, has also pleaded guilty to securities fraud conspiracy and wire fraud conspiracy, according to federal court documents.