NEW YORK (AP) — For nearly a decade, Ozy Media projected an image of new-media success.
The company boasted big-name interviews, an Emmy-winning TV show, a buzzy music and ideas festival and impressive numbers to show prospective investors — until it imploded in 2021 amid doubts about its audience size, viability and basic 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 numerous other public and court reckonings for Silicon Valley companies that went from ballyhooed to belly-up, it’s hard to forget the moment in Ozy’s downfall when co-founder Samir Rao impersonated a YouTube executive to talk up the company to prospective investors.
Watson’s and Ozy’s lawyers blame any misrepresentations solely on Rao, who has pleaded guilty to conspiracy to commit fraud and to identity theft. The defense also has claimed that prosecutors are casting commonplace entrepreneurial puffery as a crime and singling out Watson, a Black founder in a tech world where African American executives have been disproportionately few.
“I am not now and never have been a ‘con man,’” he declared when indicted last year.
Prosecutors and Rao, their star witness, say Ozy shredded the line between hopeful hype and bald-faced deceit.
“We told so many lies to so many different people,” Rao testified after recounting how a teetering company concocted rosy financials in a desperate bid to lure investors and stay in business.
The hope was to enable “a diverse audience, to consume, hopefully, a different, more meaningful kind of content,” he said. But “survival within the bonds of decency, fairness, truth, it morphed into survival at all costs and by any means necessary.”
‘The new and the next’
Ozy was founded in 2012 on a Millennial-friendly premise of providing a fresh, sophisticated-but-not-stuffy take on politics, culture and more — billed as “the new and the next” — while amplifying minority and marginalized voices.
A Harvard and Stanford-educated son of two South Florida teachers, Watson had worked on Wall Street, started and sold a test-prep company and anchored on MSNBC. He conceived of Ozy and then recruited Rao, a former finance-world colleague, after a chance meeting at a Chipotle restaurant in Silicon Valley, according to Rao.
Ozy debuted with a website, newsletters and a bang: Former President Bill Clinton was one of its first interviewees. The company expanded into podcasts, events and TV shows, winning a 2020 Emmy for the Watson-hosted “Black Women OWN the Conversation,” on the Oprah Winfrey Network. The annual Ozy Fest in New York’s Central Park drew big names ranging from John Legend to a pre-presidency Joe Biden.
The company attracted a roster of major advertisers, clients and grants, according to testimony. But behind the scenes, prosecutors say, Ozy started bleeding money in 2018 and began trying to save itself with lies.
‘I don’t know where his numbers came from’
The company told a prospective investor it “finished 2017 with approximately 12 million in revenue” but gave its accountants a number under $7 million. The gaps widened with the years, yawning to as much as $53 million-vs.-$11 million for 2020, according to testimony and documents shown at trial.
Meanwhile, Ozy frequently delayed paying vendors and rent, borrowed against future receipts to get pricey cash advances and struggled to make payroll, former finance vice president Janeen Poutre testified.
The defense portrayed the cash scrambles as the growing pains of a successful startup.
“Ozy Media did not defraud its investors or anyone else,” said the company’s lawyer, Shannon Frison.
Watson lawyer and Harvard Law School Professor Ronald Sullivan Jr. said his client “believed every number that he gave every investor.” Sullivan suggested revenue figures could vary depending on whether they account for such “in-kind” income as trading ads with another outlet.
Poutre testified that auditors rarely agree to count such revenue and she did not feel Watson was always honest.
“I don’t know where his numbers came from. I know where my numbers came from,” she said.
Fake emails and a voice disguise
The alleged schemes went beyond questionable numbers.
While trying to get Ozy a bank loan in 2020, Rao faked a contract saying that 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 phony email account for a real OWN executive and used it to offer the bank “background on the transaction.”
Rao told jurors that Watson verbally approved the charade. Jurors saw a text message from Watson exhorting Rao to “be bold, get it done,” but the ”it” wasn’t specified. Ultimately, witnesses said, neither the loan nor the show renewal happened.
Rao’s infamous phone call came the next year as Ozy sought an investment from Wall Street giant Goldman Sachs. He’d falsely claimed YouTube was paying for Watson’s eponymous talk show. When Goldman bankers wanted confirmation, he downloaded a voice-modifying app and pretended to be a YouTube executive on a call with them.
But the bankers were wary, the real YouTube exec soon found out and Watson told Goldman Sachs and Ozy’s board that his co-founder had suffered a mental breakdown.
The investment didn’t materialize, but Goldman Sachs continued advertising with Ozy after the episode, Rao said.
Rao told jurors he was taking antidepressants but was not having a psychiatric crisis when he made the call. Watson was present and coaching him via text message, Rao said.
“I am a big fan of Carlos, Samir and the show,” reads one text, which Rao explained as Watson feeding him a line for his phony persona to say. Then Watson urged, “use the right pronouns. You are NOT OZY,” among other messages.
‘You’re a liar, right?’
Watson’s lawyer said the Ozy founder stumbled upon Rao’s deceit midstream, was appalled and signaled him to hang up.
The defense has emphasized that Rao drafted a 2021 letter — ultimately unsent — saying the phone ruse was his alone. Rao told jurors he wrote it to protect the company.
Defense lawyers have cast him as an incompetent executive, confessed fabricator and admitted criminal who’s falsely implicating 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.
“Regrettably,” Rao replied, “I’ve told many lies in my time at Ozy.”
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