- Ozy Media CEO Carlos Watson was arrested on Thursday, facing charges of fraud and identity theft from a New York grand jury.
- Former COO Samir Rao pleaded guilty to fraud and identity theft charges days before.
- The media startup has been ridden with scandal after it came out that the company had inflated its financial performance.
Ozy Media CEO Carlos Watson was charged with two federal criminal counts of fraud and one count of identity theft, according to court documents released Thursday.
The FBI arrested Watson on Thursday morning in Manhattan, according to a law enforcement source. If convicted, he faces up to 37 years in prison.
The news came after former operating chief Samir Rao and chief of staff Suzee Han pleaded guilty in the case. The company was also indicted. The Securities and Exchange Commission also accused Watson and Ozy of widespread fraud.
Ozy Media has been marred by scandal since a 2021 report from the New York Times revealed that Rao had impersonated a YouTube executive on a call with Goldman Sachs while seeking a $40 million investment. The company also inflated viewer metrics. That report led to investigations by the Justice Department and the SEC into the company's practices.
According to The Wall Street Journal, Rao said in a Brooklyn court under an approved "John Doe" pseudonym that he had lied to investors and overstated Ozy's performance between 2018 and 2021. He also said he used a false identity between February 2020 and February 2021.
A federal grand jury in New York is now alleging that Watson, along with Rao, chief of staff Suzee Han, and other members of the company "engaged in a scheme to defraud Ozy's investors, potential investors, potential acquirers, lenders and potential lenders," by misrepresenting financial information like their audience numbers and investments.
For example, Sharon Osbourne told CNBC that Ozy Media had lied about the Osbourne family investing in the startup.
"We're extremely disappointed by the actions taken today by the government. Since December, and as recently as yesterday, we have been actively engaged in good faith in constructive discussions with the government toward a potential resolution of this matter without criminal charges," said Ryan Poscablo, an attorney for Watson. "It is hard to understand the actions taken today in light of those discussions."
The company appeared to shut down in October 2021 following the reports of misconduct. Watson defended the company and said it would not shut down despite the scandals. Earlier this month, Semafor reported that Watson was attempting to bring back Ozy.
CNBC was the media partner for Ozy Media's Ozy Fest 2019, which was canceled due to extreme heat.
Watson also defended the company when it came under scrutiny for lying about where his interview program "The Carlos Watson Show" would air. Producers on the show said they thought it was being made for the A&E channel, but it ultimately became a YouTube show. Watson denied lying about the show in an interview on CNBC's "Squawk Box" and said he hoped it had only been a "mix up of words."
Correction: This story was updated to reflect that Samir Rao was Ozy's COO.