BROOKLYN (CN) — Samir Rao, a former executive at the now-defunct Ozy Media, testified Thursday that he lied about the company’s earnings during sale negotiations with BuzzFeed and crafted fake invoices to keep the flailing digital media company afloat.
Carlos Watson, founder and chief executive officer of Ozy Media, appeared on the second day of his jury trial in Brooklyn federal court wearing a black suit and a yellow polka dotted tie. He’s accused of lying about Ozy’s revenue, profit earnings and audience data to try and induce potential investors to provide funding to the company.
Watson, a Harvard graduate who earned a law degree from Stanford University, faces criminal charges of securities and wire fraud conspiracies and aggravated identity theft for accusations he deceived investors and conspired to impersonate leaders of other media groups in furtherance of the scheme.
Rao, former chief operating officer, and Suzee Han, onetime chief of staff, separately pleaded guilty to charges last year and are now cooperating with the government. The pair were also named alongside Watson in a separate lawsuit filed by the U.S. Securities and Exchange Commission.
Once a member of Watson’s “secret inner circle,” Rao, a fellow Harvard grad, detailed a series of schemes the pair concocted to dupe investors into believing the company was thriving and profitable, despite struggling to afford its employees’ payroll.
Rao arrived in court wearing a white button up shirt and a dark gray jacket. He told jurors he became involved in Ozy Media shortly after he moved out west to Silicon Valley and ran into Watson at a Chipotle in Mountain View, California.
He said Watson, who was formerly a contributor on MSNBC, pitched Ozy to him shortly after that run-in as a “new kind of news, that wasn’t just the same old stories day after day — but fresh, interesting new profiles on people, places, trends and ideas that deserve to be told but weren’t being told.”
“And I remember finding the entire thing totally compelling and interesting, and in some ways, it had the ring of truth in my gut,” Rao said.
Rao agreed to help with launching Ozy and was Watson’s “second hand” for the next decade until the media company shuttered in 2021.
The company began to struggle financially in 2017, and Rao said that he, along with Watson and Han, repeatedly lied to investors to keep the company afloat. During his testimony Thursday, he detailed one particular scheme in which the three inflated financial projections to secure funding.
In 2019, BuzzFeed expressed interest in purchasing the now-shuttered media company. Rao said Watson and he agreed to open negotiations and provided a series of pitch decks outlining the various elements of the company and its revenue stream.
In its heyday, Ozy boasted its original television shows such as the flagship “Carlos Watson Show” in which the media company’s founder interviewed politicians and pop culture celebrities including Joe Biden, Hillary Clinton and John Legend. The startup also prided itself in the annual “Ozy Fest” which featured A-list musicians, comedians and public figures — such as Ru Paul, writer Malcolm Gladwell, and rapper Common.
Rao said he and Watson wanted to emphasize Ozy’s television and events ventures because they believed those were most interesting to BuzzFeed. To do so, he said, they adjusted the revenue data in the pitch to BuzzFeed to make those elements of the company look more successful than they were.
Reviewing various drafts of the pitch deck shown in court, Rao pointed to how the initial draft listed television revenue at $6 million in 2019 — but that number changed to $8 million by the third draft. The same was true for events revenue, which jumped from $11 million to $15 million for the year 2020 when the initial and third drafts were compared.
This was done to “portray the business in as favorable a manner as [Watson] deemed necessary,” Rao said.
On a separate slide of the pitch deck, Rao was asked about the reported revenue for Ozy’s television show “Black Women Own the Conversation,” a collaboration between Ozy Media and the Oprah Winfrey Network.
Rao and Watson lied by saying the show had been renewed for a second season and received $1.5 million in revenue for the first season, Rao said.
“We knew that individually if the show was renewed for a second season, it would make it more valuable in the eyes of BuzzFeed,” Rao said.
But the BuzzFeed sale never went through. Watson says it’s because he declined multiple escalating offers from the company to purchase Ozy. Last year, Ozy Media also sued BuzzFeed and its onetime Editor-in-Chief Ben Smith over accusations Smith stole company trade secrets he obtained during these sale negotiations to start Semafor, a global news organization launched in 2022.
It was Smith, too, who wrote the 2021 New York Times article — he was the Times' media columnist at the time — exposing the incident in which Rao impersonated a YouTube executive on a Goldman Sachs conference call to induce an investment in Ozy.
Besides lying on the pitch deck, Rao described times in which he crafted fake invoices in order to secure bank loans. In one instance, he said that he created a fake invoice to acquire a loan from FastPay, now known as AvidXchange, but the lender found out that the invoice was forged and dropped Ozy as a client.
After losing FastPay as a lender in late 2018, he said Ozy Media could not afford to pay its employees. In order to avoid disclosing this to employees, Rao said he obtained “merchant cash advances,” which came from high-speed lenders that imposed high interest rates and an aggressive payback schedule.
Though he secured a $200,000 loan from this high speed lender, he said it required him to pay back $50,000 or more a day but he needed to do it so as not to alarm Ozy’s employees if they did not receive their paychecks.
“The burden to pay back this debt every single day, it was crushing,” Rao said.
Watson was arrested last year at the Hotel NH Collection in Manhattan. If convicted, he could face up to 37 years in prison.
Follow @NikaSchoonover
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