Ozy Media, CEO Convicted of Fraud After Staged Goldman Call

(Bloomberg) -- Ozy Media and Chief Executive Officer Carlos Watson were found guilty of defrauding investors in a case featuring allegations Watson coached his co-founder to impersonate a YouTube executive to get Goldman Sachs bankers to back the media startup.

A jury delivered its verdict on the former TV host and Ozy Media Tuesday in Brooklyn federal court following a six-week trial. The panel began deliberating Friday afternoon.

Watson, 54, and the company were convicted of conspiracy to commit wire fraud and securities fraud, while Watson was also convicted of aggravated identity theft. Watson faces as long as 37 years in prison when he’s sentenced, prosecutors have said, but he is unlikely to get a term that long.

Ozy, a once-lauded media startup based in Mountain View, California, and backed by Marc Lasry, collapsed shortly after the New York Times reported on the impersonation in 2021 and the startup’s business practices came under sharp scrutiny.

Prosecutors alleged that Watson hatched a scheme to con investors out of tens of millions of dollars by lying about Ozy’s revenue and staging the deceptive phone call with two bankers at Goldman Sachs Group Inc. to raise funds. Watson was also accused of falsely telling an investor his startup had received a $600 million takeover offer from a large tech firm.

“Watson knew the company was failing, but he was determined to turn Ozy and himself into the next big thing, and he wasn’t going to let the truth stand in his way,” US Assistant Attorney Gillian Kassner said during her closing arguments on Wednesday. 

Watson’s lawyer, Ronald Sullivan Jr., argued that the government was going after the wrong person. 

“This case is about a crooked co-founder Samir Rao who lied, undermined and betrayed Mr. Watson,” he said during his closing statement to the jury.

Rao testified against Watson after agreeing to plead guilty, as did Ozy’s chief of staff, Suzee Han.

Rao told the jury that Goldman Sachs had agreed to invest $35 million in the startup, but asked to hear from clients like YouTube. He testified that to fool the bankers into thinking the company was profitable, he took his cues from Watson on what to say when he pretended to be YouTube executive Alex Piper during a February 2021 conference call. Both immediately realized their plan failed catastrophically, Rao said. 

In their own testimony, the Goldman bankers said the deal collapsed after they heard a “surreal” voice on the call. Rao said he had used a voice-altering app to disguise his voice. Goldman reached out to the real Alex Piper, who phoned Rao and demanded an explanation.

Watson took the witness stand for several days to defend himself. He denied wrongdoing and any involvement in the staged Goldman phone call. 

During cross-examination Watson was asked by a prosecutor why he didn’t fire Rao after the Goldman call. He replied that Rao was put on suspension and said under questioning from his own attorney that he didn’t have the power to terminate his co-founder.

Ozy’s board of directors removed Rao from the board after the Goldman call. 

(Updates with more context from the trial starting in paragraph three.)

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