Federal prosecutors are seeking to put Carlos Watson, the founder of now-shuttered media startup Ozy Media, in jail after he allegedly used confidential documents in a lawsuit against BuzzFeed.
Watson is facing a criminal trial after being indicted last February on charges of fraud and aggravated identity theft that allegedly took place while he was running Ozy. Meanwhile, federal prosecutors in that case have asked a judge on Wednesday to revoke Watson’s bail over allegations that he improperly disclosed confidential documents from the case as Ozy prepared a separate, civil lawsuit against BuzzFeed and the journalist who first wrote about alleged fraud at Ozy.
In the new court filing, the prosecutors alleged that Ozy Media’s civil lawsuit filed in December had “quoted multiple internal BuzzFeed emails” between the journalist, Ben Smith, and BuzzFeed’s CEO. The government alleges that “each of these communications” were produced in discovery for Watson’s criminal trial, and therefore were protected by a court order and generally prohibited from being shared with other parties, including Watson and Ozy’s attorneys for that case.
In a letter, the prosecutors yesterday asked the federal judge in New York to decide whether to revoke Watson’s bail, alleging that Watson had committed a felony by disseminating the private documents. The prosecutors argued Watson’s behavior was part of a “larger pattern” to retaliate against witnesses, pointing out that the startup CEO had previously “cut off legal fee advancement” to employees that Watson believed were cooperating with the government’s investigation, filings show.
The prosecutor’s letter states that Watson’s attorney admitted to discovery materials being “inadvertently used” in the BuzzFeed case. Watson and Watson’s attorney did not respond to Fortune’s immediate request for comment. The judge has yet to respond to the prosecutors’ request for a hearing on the matter. The Daily Beast was first to report about the letter.
Watson is currently seeking to dismiss the criminal indictment, asserting that it seeks to criminalize “puffery” that is common among founders raising venture capital, and alleging that Watson, who is Black, has been subject to greater scrutiny than white entrepreneurs.
Ozy Media—which had raised more than $70 million from investors including German media conglomerate Axel Springer, Ron Conway, and GSV Capital, according to PitchBook—was founded in 2013 on the premise it would build a diverse newsroom and tell stories other media outlets were ignoring. The startup became entangled in controversy shortly after Smith revealed in a New York Times story that an Ozy executive had impersonated a YouTube executive on a call with Goldman Sachs about getting more funding. Fresh allegations surfaced shortly after about the company widely exaggerating its revenue and subscription data. Nearly all of Ozy’s board members resigned in the aftermath, and the company effectively imploded within days, as Fortune has previously reported. Since then, Watson has made several attempts to restart Ozy.
In its case, the Justice Department made more serious allegations against Watson and Ozy Media, including that Watson and Ozy executives had impersonated media company executives, lied to prospective investors about who else may invest in the company, the size of acquisition offers Ozy had received, and that they had directed employees to create fake contracts with forged signatures to provide to investors during due diligence.
Following the indictment, Watson was arrested in Feb. 2023 by the F.B.I., and later released after posting a $1 million bond. Shortly after his arrest, Ozy suspended operations, according to an Ozy announcement on X, formerly known as Twitter. Watson and his attorney have since repeatedly asserted that he has been treated unfairly by prosecutors because of his race.
In the civil lawsuit Ozy filed in December, Ozy accused Smith of willfully misappropriating Ozy Media’s trade secrets to launch his own media company. Smith, Smith’s media company, Semafor, did not return a request for comment while BuzzFeed declined to comment.
