NEW YORK — For almost ten years, Ozy Media projected an image of the success of new media.
The company boasted big-name interviews, an Emmy-winning TV show, a vibrant music and ideas festival and impressive numbers to show potential investors – until it imploded in 2021 amid questions about its audience size , viability and fundamental integrity.
Those doubts are now at the center of a federal criminal trial. Founder Carlos Watson and Ozy are fighting charges of conspiracy to commit fraud.
Even after countless other public and legal reckonings for Silicon Valley companies that went from ballyhooed to bulled-up, it’s hard to forget the moment of Ozy’s demise when co-founder Samir Rao posed as a YouTube executive to launch the company with discuss potential investors.
Attorneys for Watson and Ozy blame any misrepresentations solely on Rao, who has pleaded guilty to conspiracy to commit fraud and identity theft. The defense has also argued that prosecutors are framing mundane entrepreneurial talk as a crime and singling out Watson, a Black founder in a tech world where there are disproportionately few African-American executives.
“I am not now and never have been a ‘con artist,’” he said when he was charged last year.
Prosecutors and Rao, their key witness, say Ozy tore the line between hopeful hype and bald deception.
“We told so many lies to so many different people,” Rao testified after recounting how a faltering company made up rosy financial figures in a desperate attempt to lure investors and stay in business.
The hope was to “enable a diverse audience to, hopefully, consume a different, more meaningful type of content,” he said. But “survival within the bounds of decency, honesty and truth turned into survival at all costs and by any means necessary.”
Ozy was founded in 2012 with a Millennial-friendly premise: to provide a fresh, sophisticated but not boring take on politics, culture and more – billed as ‘the new and the next’ – while amplifying the voices of minorities and marginalized people .
Watson, a Harvard- and Stanford-educated son of two South Florida teachers, had worked on Wall Street, founded and sold a test-prep company and settled on MSNBC. He created Ozy and then recruited Rao, a former colleague from the financial world, after a chance meeting at a Chipotle restaurant in Silicon Valley, Rao said.
Ozy debuted with a website, newsletters and a banger: former President Bill Clinton was one of the first interviewees. The company expanded into podcasts, events and TV shows, winning an Emmy in 2020 for the Watson-hosted “Black Women OWN the Conversation” on the Oprah Winfrey Network. The annual Ozy Fest in New York’s Central Park attracted big names ranging from John Legend to Joe Biden, a pre-president.
According to testimonials, the company attracted a series of major advertisers, customers and subsidies. But behind the scenes, prosecutors say, Ozy began hemorrhaging money in 2018 and began supporting himself with lies.
The company told a potential investor that it had “finished 2017 with sales of approximately $12 million,” but gave its accountants a figure of less than $7 million. The differences widened over the years, reaching as much as $53 million versus $11 million for 2020, according to testimony and documents shown at trial.
Meanwhile, Ozy regularly delayed paying suppliers and rent, borrowed against future earnings to get expensive advances and struggled to make payroll, former Vice President of Finance Janeen Poutre testified.
The defense portrayed the money problems as the growing pains of a successful startup.
“Ozy Media did not defraud its investors or anyone else,” said the company’s attorney, Shannon Frison.
Watson attorney and Professor Ronald Sullivan Jr. of Harvard Law School said his client “believed every number he gave to every investor.” Sullivan suggested that the revenue figures may vary depending on whether they represent such in-kind revenues, such as trading ads at another outlet.
Poutre testified that accountants rarely agree to count such income and she felt Watson was not always honest.
‘I don’t know where his numbers come from. I know where my songs come from,” she said.
The alleged plans went beyond questionable numbers.
While trying to get Ozy a bank loan in 2020, Rao forged a contract saying Winfrey’s OWN network had renewed “Black Women OWN The Conversation” for a second season. When the bank wanted information directly from the network, Rao set up a fake email account for a real OWN manager and used it to provide the bank with “background information on the transaction.”
Rao told jurors that Watson had verbally approved the charade. Jurors saw a text message from Watson urging Rao to “be brave, get it done,” but the “it” was not specified. Ultimately, witnesses said, neither the loan nor the renewal of the show took place.
Rao’s infamous call came the following year when Ozy was seeking an investment from Wall Street giant Goldman Sachs. He had falsely claimed that YouTube paid for Watson’s talk show of the same name. When Goldman’s bankers wanted confirmation, he downloaded a voice-matching app and pretended to be a YouTube executive talking to them.
But the bankers were wary, as the real YouTube executive soon found out, and Watson told the boards of Goldman Sachs and Ozy that his co-founder had suffered a nervous breakdown.
The investment didn’t materialize, but Goldman Sachs continued to advertise Ozy after the episode, Rao said.
Rao told jurors he was taking antidepressants but was not in a psychiatric crisis when he called. Watson was present and coached him via text message, Rao said.
“I’m a big fan of Carlos, Samir and the show,” reads one text, which Rao explained as Watson gave him a line for his fake character to say. Then Watson urged, “Use the correct pronouns.” You are NOT OZY,” among other messages.
Watson’s lawyer said the Ozy founder discovered Rao’s deception midway through, was shocked and signaled him to hang up.
The defense has emphasized that Rao drafted a 2021 letter — which was ultimately not sent — stating that the phone trick was his alone. Rao told jurors he wrote it to protect the company.
Defense attorneys have portrayed him as an incompetent executive, a known fabricator and an admitted criminal who falsely implicates Watson in hopes of avoiding prison for his own crimes.
“So Mr. Rao, you’re a liar, right?” Sullivan asked during cross-examination last Friday.
“Unfortunately,” Rao replied, “I told a lot of lies during my time with Ozy.”
