We’re getting just a little weary of writing “Start-ups Gone Bad” blog posts. The list is already substantial. We’ve profiled Theranos, of course. More than once, in fact. And then there’s WeWork, Robinhood, and the Fyre Festival. We’ve even written a more general blog post entitled “Lies and the Lying Entrepreneurs Who Tell Them”.

This week’s lesson in how to trade your corner office for a jail cell comes from Ozy Media. Its founder, Carlos Watson, was just arrested and now faces up to 37 years in jail for conspiracy to commit wire fraud and conspiracy to commit securities fraud. Oh, yes, and there’s a charge of aggravated identity theft suitable for a Saturday Night Live skit.

As is so often the case, it seems, Ozy Media was founded by a charismatic young person with loads of brains, enthusiasm, and creativity–Watson. A person of color with degrees from Harvard and Stanford, Watson’s potential seemed limitless. After graduating from Stanford Law School, he worked for McKinsey & Co., then founded his own test-prep company which he sold to competitor Kaplan. Then he worked for Goldman Sachs, was a contributor on MSNBC, and an anchor on CNN. He hosted shows on BET and PBS and was elected to PBS’s board of directors.

In 2013, he founded Ozy to produce a daily digital news and culture magazine for the modern millennial media consumer. His co-founder was a fellow Goldman alum, Samir Rao, who became the firm’s COO to Watson’s CEO. With creativity, energy and unlimited promise on offer, Ozy raised tens of millions of dollars in funding. Unfortunately, the company struggled to make money and by 2017 was running out of resources. At that point Watson and Rao, soon joined by chief of staff Suzy Han, borrowed Elizabeth Holmes’s Theranos playbook and lied pretty much nonstop for the next four years to potential investors and lenders. Over and over and over they lied about Ozy’s revenue, often exaggerating by 2X or more. They constantly exaggerated their metrics—how many subscribers, how many viewers, how much web traffic, etc. Repeatedly they invented out of whole cloth contracts with other firms or mischaracterized the profits that would flow from contracts they did have. Time after time, they told Investor A that respected Investor B had put $10 million into Ozy when, in truth, Investor B had invested much less or perhaps nothing at all.

Two moments in the fraud scheme stand out that will make great scenes when the movie version of the Ozy story is produced. First, according to the Department of Justice (DOJ) indictment, in December of 2019, Ozy was desperate for funds and sought a loan from a bank. The bank was willing to make the loan because of representations Watson had made about anticipated revenue from a second season of a television show Ozy was producing. Accordingly, the loan could not proceed until the contract with a cable network was finalized, which had not been done. Watson then directed Ozy’s CFO to send the bank a fake contract purporting to be the finalized cable contract. She refused, so Watson had Rao send the bogus contract with unrealistically favorable (to Ozy) terms and a forged signature of the cable channel’s representative. When the CFO learned this had been done, she resigned immediately, explaining:

This is illegal. This is fraud. This is forging someone’s signature with the intent of getting an advance from a publicly traded bank. To be crystal clear, what you see as a measured risk, I see as a felony. Did either of you (Carlos, when you asked me to put together a contract and/or Samir, when you sent the email) have any idea (or did it even occur to you to care) that I could go to jail for forgery and bank fraud?

The second made-for-TV moment came when Ozy was trying to convince Watson’s former employer, Goldman Sachs, to invest $40 million in Ozy (a big chunk of which would go into Watson’s pocket). Ozy’s key selling point was the supposed success of its videos on YouTube. In a February 2, 2021 Zoom conference call, Watson made the pitch to Goldman and was prepared, it appeared, to back up his claims of success by adding Alex Piper, head of unscripted programming for YouTube Originals, to the call. However, someone claiming to be Piper said that he was having difficulty logging on to Zoom and recommended the parties switch to a regular telephonic conference call which, of course, would lack video. On the call, Piper confirmed Watson’s claims about how successful Ozy’s videos were in garnering viewers and ad revenue on YouTube. However, at some point in the call, Piper’s voice started to sound as if it were digitally altered and the Goldman representatives became suspicious. After a quick call to Piper, who said he had never spoken to Goldman, it came to light that Rao had impersonated Piper during the call.

When caught, Watson even lied about the lie, attributing the impersonation of Piper to a “mental health crisis” that Mr. Rao had suffered, saying: “Samir is a valued colleague and a close friend. I’m proud that we stood by him while he struggled, and we’re all glad to see him now thriving again.” Nice try … until it came to light that Watson was texting Rao during the call, telling him what to say.

Crazy, right?

When the New York Times reported on this conversation in September 2021, it was the beginning of the end for Ozy Media. Ultimately, Rao and Han entered guilty pleas to DOJ charges against them. Presumably, they will testify against Watson, the biggest fish in the pond, should a trial occur.

At this point, Watson is, of course, presumed to be innocent of criminal charges. But we don’t like his odds of securing an acquittal. Why did he do it? Especially after his CFO emphasized, what would have been clear to any second grader, that lying is wrong? Why did Watson jettison a deontological approach to decision-making (“lying is wrong”), for a misapplied utilitarian approach where he presumably concluded that the greater good was saving the company by whatever means necessary. We hope that at some point we will receive some explanations from Watson, but until then, we can only speculate.

Likely, Watson suffered from the overconfidence bias in believing that he could save his floundering company. Watson’s career had, up until this point, been a continuous string of successes, which could give rise to the overconfidence bias, warping Watson’s judgment on strategic and ethical matters.

Watson’s decision to embark on this massive fraud was likely bolstered by the self-serving bias, which can make what is best for us seem to us to be what is best. Watson’s self-interest was served in every possible way by the company’s continued existence, especially if the Goldman deal went through and put several million dollars directly into his pocket.

The fact that “fake it until you make it” seems to be a common philosophy in the entrepreneurial world might well have caused the conformity bias to influence Watson. Entrepreneur Gary Hirshberg of Stonyfield Farm claims that “everybody does it.” How bad can fudging the numbers be if so many other entrepreneurs are doing it?

People hate losses more than they enjoy gains, and the phenomenon of loss aversion likely reinforced Watson’s decision-making as he would have been extraordinarily averse to losing his money, losing his company, and losing his hot-shot reputation, all of which were on the line along with his company’s existence. Under the influence of loss aversion, people will take risks to avoid losses that they would never take to achieve equal gains.

We at Ethics Unwrapped continue to believe that the greater good is not served when capital flows to those who can tell the most convincing lies. We believe that honesty is the best policy, even for entrepreneurs. We are pleased that DOJ is pursuing this case vigorously.



Jeremy Barr, Ozy Media Founder Carlos Watson Arrested, Faces Fraud Charges, Washington Post, Feb. 23, 2023, at https://www.washingtonpost.com/media/2023/02/23/carlos-watson-ozy-arrest/.

Department of Justice, Ozy Media and Its Founder Carlos Watson Indicted in a Years-Long Multi-Million Dollar Fraud Scheme, Feb. 23, 2023, at https://www.justice.gov/usao-edny/pr/ozy-media-and-its-founder-carlos-watson-indicted-years-long-multi-million-dollar-fraud.

Sara Fischer, How Ozy Fell, Axios, Oct. 2, 2021, at https://www.axios.com/2021/10/02/how-ozy-fell.

Sara Fischer, Ozy CEO Arrested after Former Exec Pleads Guilty to Fraud, Axios, Feb. 23, 2023, at https://www.axios.com/2023/02/23/ozy-ceo-arrested-after-former-exec-pleads-guilty-to-fraud.

Benjamin Mullin et al., Ozy Media’s Founder, Carlos Watson, Arrested on Fraud Charges, New York Times, Feb. 23, 2023, at https://www.nytimes.com/2023/02/23/business/carlos-watson-ozy-arrested.html.

Ben Smith, Goldman Sachs, Ozy Media and a $40 Million Conference Call Gone Wrong, New York Times, Sept. 26, 2021, at https://www.nytimes.com/2021/09/26/business/media/ozy-media-goldman-sachs.html.

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Conformity Bias

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Overconfidence Bias

Self-Serving Bias

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