Police arrested embattled media startup CEO Carlos Watson on Thursday morning after the company’s former Chief Operating Officer Samir Rao pleaded guilty to fraud charges.
Watson is expected to be charged with securities fraud and conspiring to commit wire fraud, The Wall Street Journal (WSJ) reported. Federal prosecutors alleged in a court filing that he conspired to “defraud Ozy Media’s potential investors, potential acquirers, lenders and potential lenders,” according to The New York Times (NYT).
The company allegedly attempted to mislead Goldman Sachs during a 2021 conference call by having one of their executives impersonate a Youtube executive over the phone, the NYT reported at the time. Samir Rao pretended to be Alex Piper, the head of unscripted programming for YouTube Originals, according to the outlet. Rao allegedly told Goldman Sachs executives during the call that the Ozy videos performed very well on the platform, and he spoke highly of Carlos Watson’s leadership, the NYT reported.
Goldman Sachs later became suspicious of the voice they heard during the conference call and reportedly reached out to Piper through his YouTube assistant. Piper confirmed he never partook in the meeting, according to the NYT. (RELATED: Theranos Founder Elizabeth Holmes Guilty On Four Counts Of Fraud)
.@OZY founder @carloswatson aims to enlighten audiences with his new talk show, the #CarlosWatsonShow. #CheddarLive pic.twitter.com/792J8znCaR
— Cheddar News (@cheddar) August 7, 2020
Samir Rao pleaded guilty Tuesday to charges of fraud and identity theft. He admitted to misleading investors, inflating internal financial reports and impersonating another person without their consent between February 2020 and February 2021, according to WSJ. Watson later attributed Rao’s actions to a mental health problem, saying the incident was “deeply unfortunate,” the outlet reported.
Watson’s lawyer, Lanny Breuer, expressed “shock” at his client’s arrest.
“We are really disappointed,” Breuer told WSJ. “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.”
Watson was accused of knowingly altering contracts which were presented to companies in an apparent attempt to secure more lucrative deals, according to The Hollywood Reporter (THR). During negotiations with a digital media company in which Ozy attempted to secure a $225 million deal, Ozy allegedly mislead the company by showing them contracts with terms edited to appear more friendly to the company.
Watson and other Ozy executives “had previously misrepresented to Media Company 1 that some of the contracts contained terms more favorable to OZY than the actual terms of the contracts. As a result, [Ozy executives] with Watson’s knowledge, fraudulently altered the contracts for two of OZY’s television shows to make the contracts’ terms appear to be significantly more favorable to OZY,” THR reported, citing a copy of the charges.