Fraud Trial to Begin for Ozy Founder Carlos Watson

The 2010s were a frothy time for digital publishing. Billions of dollars flowed into publishers like BuzzFeed and Vice, with big media companies and venture capitalists betting those start-ups would eventually make lots of money.

For the most part, those huge profits were a pipe dream. But despite the lost money, disappointed investors and a slew of negative press coverage, the executives who founded those companies never had to answer for their conduct in a courtroom. Until now.

The jury trial of Carlos Watson, who is charged with trying to defraud investors in the digital media start-up he co-founded, Ozy Media, is scheduled to begin Monday with jury selection in federal court in Brooklyn. Mr. Watson has pleaded not guilty to all the charges against him. If convicted, he could face up to 37 years in prison.

It remains unclear what Mr. Watson’s defense will be when the trial begins, or whether he will take the stand. But one of the arguments his lawyer has made in court filings leading up to the trial is unusual: The allegations involve the same “puffing and bluffing” practiced by the founders of BuzzFeed and Vice, but prosecutors singled out Mr. Watson for punishment because he is a Black man.

“Their founders reportedly — and in some cases, admittedly — engaged in conduct that differs from the conduct charged in Mr. Watson’s indictment in only one way,” his lawyers argued in a legal filing from August. “Their conduct was, by orders of magnitude, far more egregious. And yet they have not been indicted.”

A judge in April rejected Mr. Watson’s motion that the charges be dismissed because of discriminatory prosecution.

“Carlos Watson is innocent of all charges, and we look forward to a jury making that determination in court,” said his defense counsel, Ronald Sullivan Jr.

Prosecutors declined to comment. The trial is expected to stretch into the summer.

Mr. Watson, a former MSNBC anchor, began publishing Ozy in 2013 with backing from prominent investors like the hedge fund manager Marc Lasry and Emerson Collective, the organization run by the billionaire philanthropist Laurene Powell Jobs. Ozy published newsletters and online news articles, often focusing on trends and personalities it deemed “the new and the next.” The company also produced podcasts and television shows.

But in 2021, Ben Smith, then a media columnist for The New York Times, revealed that Mr. Watson’s deputy, Samir Rao, had misled Goldman Sachs employees during a call that February as the company was raising money. Under scrutiny, Ozy began to falter, and staff members fled.

The company shut down but a version of its website has continued to limp along under the shadow of the fraud allegations facing Mr. Watson.

Mr. Watson was arrested in February 2023 and charged with fraud and aggravated identity theft. In the indictment, filed in U.S. District Court in the Eastern District of New York, prosecutors detailed how Ozy started to take on debt in 2018 as its funding was running out and its digital media business failed to bring in enough revenue.

Federal prosecutors say that from 2018 to 2021, Mr. Watson, along with Mr. Rao and other executives, tried to bring in more money by misrepresenting Ozy’s financial results, funding and audience data to investors and lenders. Mr. Watson knowingly inflated revenue numbers to investors and potential investors numerous times, the indictment said, and gave misleading information about participants in a financing round.

“Virtually all of the money raised in the Series C” round, about $13 million, was raised through misrepresentations by Ozy, the complaint said.

Prosecutors have argued that Mr. Watson forged a contract for a second season of an Ozy TV show to try to get a bank loan, prompting Ozy’s chief financial officer to resign and write to Mr. Watson in an email: “This … is illegal. This is fraud.”

The indictment said Mr. Watson had instructed Mr. Rao to impersonate an executive in the February 2021 video call to try to secure a $45 million investment. After the call, the potential investor contacted the person whom Mr. Rao had impersonated and unraveled the ruse, prosecutors say. Mr. Watson claimed at the time that Mr. Rao had suffered a mental breakdown and had acted alone.

Mr. Rao and Suzee Han, a former Ozy chief of staff, pleaded guilty last year to fraud charges.

Foster Kamer, a digital-media veteran who has been involved in several start-ups, said the actions that Mr. Watson was accused of committing were far different from the overly optimistic projections that many executives and investors made in the digital media go-go years of the 2010s.

The other media leaders and investors had “a financial euphoria on par with Beanie Babies, tulips and meme stocks,” said Mr. Kamer, who is the editor in chief of Futurism, a news website. “But you can’t impersonate executives on conference calls. It’s pretty cut and dry.”

Shannon Frison, defense counsel for Ozy, drew a distinction between it and competitors like BuzzFeed and Vice, saying Ozy was much more diverse and generated much of its revenue from its TV show and events and digital newsletter businesses.

“They really did have a different business model altogether,” Ms. Frison said.

In December, Mr. Watson sued Mr. Smith and Mr. Smith’s current company, Semafor, as well as BuzzFeed, his employer before The Times. In his lawsuit, Mr. Watson says Mr. Smith was made privy to information about Ozy in his role as the top editor of BuzzFeed News after the two companies discussed a deal in 2019. Mr. Watson said Mr. Smith had used that information to start Semafor, a media start-up.

Lawyers for Mr. Smith and Semafor have said the claims have no merit. Spokeswomen for both BuzzFeed and Semafor declined to comment.