Carlos Watson, the founder of the troubled digital start-up Ozy Media, was arrested on Thursday and charged with fraud by federal investigators, punctuating one of the more precipitous falls in the annals of online journalism.
Prosecutors for the Eastern District of New York said in a court document dated Wednesday that Mr. Watson, 53, had “engaged in a scheme to defraud Ozy’s potential investors, potential acquirers, lenders and potential lenders” by misrepresenting the company’s audience numbers and financial results.
Mr. Watson was arrested by the F.B.I. at a hotel in Midtown Manhattan early Thursday morning, a person familiar with the matter said. He will be arraigned in federal court in Brooklyn, N.Y., on Thursday afternoon.
His arrest came the same week that Samir Rao, Ozy’s former chief operating officer, pleaded guilty to fraud charges, according to court documents.
Lanny A. Breuer, Mr. Watson’s attorney, said he was “deeply disappointed with the events of today,” referring to his client’s arrest. Mr. Breuer added that “we had been attempting to have an open and good faith dialogue with the government, and I just don’t understand why the decision was made to arrest Carlos this morning given what we thought was our constructive dialogue.”
Mr. Watson and Mr. Rao did not respond to requests for comment.
Ozy Media was backed by Axel Springer, the German media conglomerate; the Ford Foundation; and the Emerson Collective, the organization founded by Laurene Powell Jobs. It produced a website, videos posted to YouTube and podcasts that were aimed at young audiences. The company generated a mix of stories and videos that identified up-and-coming leaders and important social causes.
In September 2021, The New York Times reported that someone at Ozy had apparently impersonated a YouTube executive during a conference call with Goldman Sachs, which was considering an investment. On the call, the impersonator said that YouTube had a great working relationship with Ozy and that Ozy’s videos were successful on the platform.
The company came under heavy scrutiny. Shortly after, Ozy said that it was shutting down. Mr. Watson said at the time that the impersonator was Mr. Rao.
Federal prosecutors with the Eastern District of New York began examining Ozy. The Justice Department and the Securities and Exchange Commission also opened investigations into the company.
Mr. Watson and Mr. Rao misled potential investors, prosecutors said in court documents this week. The men falsely claimed that Ozy was on track to generate $22 million in 2018, even after it became clear that the company could not achieve that result.
Ozy also discussed selling itself to a media company for up to $225 million in stock based on false financial data and a misleading description of its TV contracts, according to the complaint. As part of that deal, which fell through, Mr. Watson pushed for a $35 million cash payment for himself, Mr. Rao and others, the complaint said.