The founder of scandal-plagued US start-up Ozy Media has been arrested on federal fraud allegations.
Carlos Watson’s arrest came days after a former company executive, Samir Rao, pleaded guilty to fraud charges.
Ozy Media was shut down in 2021 after a New York Times investigation revealed that Mr Rao tried to deceive investors by posing as a YouTube executive.
Federal prosecutors accuse Mr Watson of running “a scheme to defraud investors” worth millions of dollars.
The US Department of Justice and the Securities and Exchange Commission have also launched investigations 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, as well as profiles of rising stars and emerging trends.
It was valued at US$159 million (£132 million) in 2020.
However, according to federal court documents filed this week, Mr Watson knew Ozy Media was “drowning in debt” but lied to investors about the company’s earnings, falsely claiming celebrities and high-profile companies had made investments.
Sharon Osborne, wife of rock star Ozzy Osbourne, has accused Mr Watson of falsely claiming the pair invested in the business, telling CNBC in 2021: “This guy is the biggest shyster I’ve ever seen in my life .”
Mr Watson was taken into custody on Thursday and is expected to be charged in federal court in Brooklyn, New York, with conspiracy to commit securities fraud and conspiracy to commit wire fraud, the Wall Street Journal first reported.
A lawyer for Mr Watson told NBC News that he was “deeply disappointed by today’s events”.
“We have been in good faith and in constructive dialogue with the government,” said attorney Lanny Breuer.
“Given the department’s claims of encouraging such dialogue, I do not understand the dramatic decision to arrest Carlos today.”
Ozy Media’s demise began after reports from The New York Times revealed that Rao posed as a YouTube executive during a call with Goldman Sachs and touted YouTube’s successful relationship with Ozy as the bank mooted an investment.
- Scandal-ridden Ozy Media has shut down
- Former BBC journalist leaves US media company
Mr Watson blamed Rao’s mental health problems for the deception. He added that no harm was done because Goldman Sachs ultimately chose not to invest.
In court filings this week, prosecutors allege Mr Watson was present during the call and “sent Rao instructions on what to say,” although he previously denied to the media that he was there.
Mr Watson and Rao posed as media company executives “on multiple occasions” to cover up fraudulent statements when confronted with questions from investors, prosecutors allege.
Mr Rao on Tuesday pleaded guilty to conspiracy to commit securities fraud, conspiracy to wire fraud and identity theft and admitted before a judge to making misleading statements to investors and inflating the company’s finances.
The company’s former chief of staff, Suzee Han, has also pleaded guilty to conspiracy to commit securities fraud and conspiracy to wire fraud, according to federal court documents.
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