The fraud trial of Ozy Media cofounder Carlos Watson has begun. His attorneys have argued race played a role in his indictment.

• Attorneys are seating a jury in the Brooklyn fraud trial of Ozy Media cofounder Carlos Watson

• Prosecutors allege Watson orchestrated a scheme to defraud investors and lenders.

• Watson's defense attorneys have argued that racial bias played a role in his indictment.

Attorneys began jury selection in the criminal fraud trial of Carlos Watson, the cofounder of the fallen digital media startup Ozy Media.

Federal prosecutors accuse Watson, the face of the company, of orchestrating a scheme to defraud investors and lenders of tens of millions dollars by deliberately misrepresenting Ozy's financial and business assets.

The trial is set in federal court in Brooklyn, New York.

According to prosecutors, between 2018 and 2021, Watson and other executives engaged in the scheme "through material misrepresentations and omissions" about Ozy's financial results, debts, audience numbers, and investors' identities and the sizes of their investments, among other things.

Prosecutors say Watson conspired to impersonate media company executives during interactions with Ozy's lenders and prospective investors.

Watson has been charged with conspiracy to commit securities fraud, conspiracy to commit wire fraud, and aggravated identity theft. If convicted of the charges, he faces up to 37 years in prison.

Opening statements in the trial are expected to begin next week, and it's not yet clear what Watson's defense will be, but his attorneys have argued in court documents that racial bias played a role when he was indicted in February 2023.

In an August motion to dismiss the indictment, which was unsuccessful, Watson's attorneys argued that the "well-known and well-documented practices of puffing and bluffing venture funding" may not be the "archetypes of ideal moral behavior," but are a "critical part of an economic system that has created the incredible innovations of the last decades from Apple and Google to Tesla and Airbnb."

The defense attorneys said in the court filing that during the time of Ozy's development, early-stage investors had a swath of digital media companies to choose from, including BuzzFeed and Vice Media.

"While these companies were and are household names, they have either completely collapsed or are financially struggling, as are similarly situated digital media firms," the attorneys wrote.

"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: their conduct was, by orders of magnitude, far more egregious. And yet they have not been indicted," the filing read.

The lawyers continued, "The fact that Carlos Watson and his company have been indicted is not the only difference between them and their peer founders and companies. The others are white and white-owned. Carlos Watson is a Black man and Ozy Media was majority-owned by people of color."

Attorneys for Watson did not immediately respond to a request for comment from Business Insider on Monday.

Ozy was launched in 2013, and by 2020, the startup had raised more than $80 million from investors, including Marc Lasry, Laurene Powell Jobs, and Ron Conway. Axel Springer, which owns Business Insider, was also an investor.

The company's demise was sparked by a series of articles by Ben Smith, who joined The New York Times as a media columnist after leading BuzzFeed's news division.

Smith reported in a September 2021 article that Samir Rao, Ozy's cofounder and chief operating officer — who, along with Ozy's chief of staff Suzee Han, has pleaded guilty to charges relating to their roles in the fraud scheme — impersonated a YouTube executive in a meeting with investors at Goldman Sachs.

Smith also reported on claims that Ozy significantly exaggerated its audience figures in public statements.

Ozy filed a lawsuit against Smith, his news website Semafor and Buzzfeed in December, alleging that he violated a nondisclosure agreement and stole trade secrets from Ozy to build his own media company.

Representatives for Smith and Semafor did not immediately respond to a request for comment by BI. BuzzFeed declined to comment.

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