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Ozy Media faces federal investigations from Justice Dept. and SEC

Disgraced startup Ozy Media faces federal investigations by the Justice Department and the Securities and Exchange Commission after the Silicon Valley company was accused of misleading potential investors.

Federal prosecutors with the Eastern District of New York have reportedly contacted at least one company that had connections with Ozy, according to The New York Times.

Investigators with the SEC have also contacted at least two companies that had discussed investing with Ozy, the paper reported Wednesday.

It is not clear, however, what the investigations are focused on.

Ozy Media had announced they were shutting down the company on October 1, laying off 75 staffers, after the company’s co-founder Samir Rao had impersonated YouTube executive Alex Piper during a conference call with Goldman Sachs. 

Ozy Media chief executive Carlos Watson acknowledged the investigations in an email and claimed he heard from both the Justice Department and the SEC

The company went under fire after former COO Samir Rao had placed a fraudulent phone call pretending to be a YouTube executive in order to gain an investment

The company went under fire after former COO Samir Rao had placed a fraudulent phone call pretending to be a YouTube executive in order to gain an investment

Ozy Media faces federal investigations after they were opened by the Justice Department and the Exchange Commission

Ozy Media faces federal investigations after they were opened by the Justice Department and the Exchange Commission

Carlos Watson, the company’s chief executive, made mention of the investigations in an email he sent to  investors last month, The Times reported.

Watson wrote in the email that he had heard from the SEC and Justice Department.

He also said that Ozy Media was enlisting the help of law firm Zuckerman Spaeder ‘to help us navigate the investigations.’ 

The media executive also hired Andrew Levander, the chairman of law firm Dechert, according to another source.  

The company came under fire after Rao appeared on a call posing as Piper on February 22 in an attempt to gain a $40 million investment from Goldman Sachs.

The investment company then emailed YouTube, which said that their executive had never been on the call.

Rao had placed the call to Goldman Sachs in hopes of securing the $40 million investment

Rao had placed the call to Goldman Sachs in hopes of securing the $40 million investment

Watson and Rao had founded the company in 2013 which is a media and entertainment company that includes a digital magazine, newsletter and podcast

Watson and Rao had founded the company in 2013 which is a media and entertainment company that includes a digital magazine, newsletter and podcast

Watson later revealed the caller’s true identity to be Rao, who has since left the company.

Goldman Sachs decided against investing in the Ozy after learning about the fraudulent call. 

After being contacted by Goldman Sachs, YouTube’s parent company Google then contacted federal authorities to investigate. 

LifeLine Legacy Holders, an investor with Ozy Media, sued the company and Rao on October 4 after they had invested $2.2 million with the company.

Rao had made the fraudulent call with the Beverly Hills-based fund manager.

The fund manager had also given the company an additional $250,000 in May after they were told that Alphabet was investing $30 million. 

Watson is attempting to return the company to the main stream scene following the incident

Watson is attempting to return the company to the main stream scene following the incident

The scandal led to company chairman Marc Lasry – the owner of the Milwaukee Bucks – resigning days after the report about the fraudulent call had been made.  

‘I believe that going forward Ozy requires experience in areas like crisis management and investigations, where I do not have particular expertise,’ he told The New York Times.

‘For that reason, I have stepped down from the company’s board. I remain an investor in the company and wish it the best going forward.’

The company was also accused by Sharon Osborne of fabricating a story that her and her rock-star husband Ozzy were Watson’s friends.

Watson had made these claims during an interview on CNBC in 2019 and also said that they were investors.

Goldman Sachs believed that Alex Piper, pictured above, was speaking with them about Ozy's success on YouTube

Goldman Sachs believed that Alex Piper, pictured above, was speaking with them about Ozy’s success on YouTube

The Osbornes had filed a 2017 lawsuit against Watson’s company for infringement, claiming Ozy Media’s trademark was ‘nearly identical’ to their own Ozzfest brand.  

‘We’re not ever, ever a friend, and we don’t have any interest in his company,’ Sharon told CNBC on Sept. 30. ‘He’s insane.’

‘This guy is the biggest shyster I have ever seen in my life.’

The company had also received $5.7 million in COVID relief funds but employees claim that Rao and Watson did not use them for its intended purpose.

After the company shut down, employees said Ozy had received two loans to help retain jobs during the pandemic.

No jobs, however, were saved and paychecks were reportedly slashed, the workers said.

The company had cut 20 percent of its staff, according to Axios, and imposed pay cuts of up to 19 percent for employees. 

Since announcing the shutdown, Watson has been sending subscribers a daily newsletters in an attempt to lure back investors.

In the email, Watson told investors that the company would be ‘taking a very deliberate approach with the media going forward’ as it was believed ‘it is not best to aggravate social media activity by responding to any and all inquiries designed to provoke additional rounds of coverage.’         

Ozy Media Chairman Marc Lasry resigned on Thursday, days after a report found that the company’s co-founder Samir Rao allegedly impersonated a YouTube executive on a call with potential investors

The media and entertainment company was founded by Watson in 2013 and  included a digital magazine, newsletter and podcast. 

It also produced a number of non-fiction television shows and, in 2016, launched its own Manhattan-based music and comedy festival, OzyFest – which brought a cease-and-desist letter from Ozzy Osbourne who claimed that the name was too similar to his Ozzfest music festival.

Watson started Ozy with Rao, who both graduated from Harvard University and had early careers at Goldman Sachs. Ozy’s early years seemed promising, but many in the industry began to accuse the company of overinflating its audience size and influence.

Eugene Robinson, who was once Ozy’s editor-at-large before he was fired earlier this year, told the Times that Ozy was a ‘Potemkin village,’ a term for a decorative façade that hides what’s failing just beneath the surface.  

Ozy was buying web traffic from ‘low-quality sources,’ meaning it had paid to have its content pop up on a reader’s browser without the reader’s knowledge, according to a 2017 BuzzFeed News report. Ozy responded by saying that it had been buying the traffic to build its email lists and had not billed advertisers for those views.

Despite boasting that its site had 50million monthly viewers in 2019, traffic measurement service Comscore found that Ozy only had 2.5 million people throughout some of 2018, but only 230,000 people in June 2021 and 479,000 in July of this year.

Sharon Osburne, pictured with her husband Ozy, denied Watson's claims and said her interactions with Ozy Media were never amicable as the couple sued over the company's Ozyfest name due to its striking similarity to the heavy metal legend's Ozzfest

Sharon Osburne, pictured with her husband Ozy, denied Watson’s claims and said her interactions with Ozy Media were never amicable as the couple sued over the company’s Ozyfest name due to its striking similarity to the heavy metal legend’s Ozzfest

Watson said the Comscore numbers were ‘incomplete’ and didn’t include figures coming from platforms outside of the website.

Jason Urgo, the head of the analytics firm Social Blade, told the Times that Ozy’s YouTube effort ‘doesn’t really stand out as a breakout channel.’ 

He said that a lot of videos had over a million views, but less than 100 comments, an unusual ratio that could mean the views were not from regular YouTube users. 


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