Disgraced startup Ozy Media could now face a securities fraud probe over claims its co-founder Samir Rao duped people into investing in the company by falsely claiming Google had taken a $30million stake.
Ozy’s founders could be accused of tricking investors into buying into their website after being lured with false promises of a cash injection from the web search giant.
The latest troubles facing the axed news website came after three insiders told Axios Google Ventures did not reach an agreement with the failed media startup to lead its new funding round.
Rao allegedly told investors in May that Google Ventures – the tech giant’s venture capital arm – had vowed to invest.
Disgraced startup Ozy Media could now face a securities fraud probe over claims its founder Samir Rao duped people into investing in the company by falsely claiming Google had taken a $30million stake. Ozy cofounders Carlos Watson (left) and COO Samir Rao (right)
One of the sources said the global tech giant’s investment arm and Ozy had been in talks in the past, but that there had been no such discussions in 2021.
It is unclear when the most recent discussions between Ozy and Google were held.
LifeLine Legacy Holdings filed a lawsuit Monday alleging the firm and Rao ‘misled’ investors into believing ‘(Google parent company) Alphabet or one of its Google affiliates’ had put up $30 million for the Series D funding round, the fourth stage in funding after a startup is created.
LifeLine said these claims of the involvement of the tech giant’s investment arm convinced it to also invest $250,000 in the funding round.
This also came on top of a previous investment of $2 million into the media firm in February.
The latest allegations come off the back of several damning reports about Ozy’s questionable business practices over the last few weeks, which began when it emerged Rao posed as a YouTube executive to convince Goldman Sachs to invest $40million in the firm.
Three insiders told Axios Google Ventures did not reach an agreement with the failed media startup to lead its new funding round – despite Rao allegedly telling investors it had
Now, claims the company lied about investment from Google suggest the cofounder went to great lengths to dupe investors into believing it had the backing of blue-chip companies.
The suit claims that Rao made these claims of Google’s involvement in May.
Then, the following month a syndicate began looking for investors for the funding round.
Angel investors in this round were shown documents claiming Google Ventures had valued Ozy at $450 million as part of material attracting investments with a minimum of $100,000, Axios revealed.
One of the syndicate organizers told the outlet this information had come from Ozy and talks with Rao, and there’s no suggestion Google had ever made any such valuation.
By late June, the syndicate had reached its investment goal but Ozy never completed the transaction.
Ozy also failed to submit filings with the SEC or make a public announcement about a funding round.
Following the scandal last month, the syndicate said it was returning the funds to the investors.
LifeLine Legacy Holdings filed a lawsuit Monday alleging the firm and Rao ‘misled’ investors into believing ‘Alphabet or one of its Google affiliates’ had put up $30 million for the Series D funding round. Pictured Watson left and Rao right
Carlos Watson, Ozy CEO and Rao’s cofounder, doubled down on Google’s alleged involvement in the company in an interview on The Breakfast Club Tuesday as he sought to salvage the scandal-ridden company.
Google had given Ozy a written offer to invest $25 million sometime this year, said Watson.
It’s unclear if Google ever did invest in the company, or if it was ever planning to.
Google Ventures declined to comment to Axios, citing pending litigation.
Rao allegedly posed as YouTube Alex Piper (above) on a conference call with investors
If the allegations are proven, Ozy and its cofounders are likely to be in more hot water for allegedly lying to investors.
The startup’s reputation began unraveling when a damning New York Times expose revealed Rao had impersonated YouTube executive Alex Piper on a conference call on February 2.
On the call, ‘Piper’ touted the success of Ozy Media videos on YouTube.
Goldman Sach’s execs were suspicious, however, and contacted the real Alex Piper to learn he was not on the call.
Watson apologized to Goldman over the incident and claimed Rao had suffered a ‘mental health crisis’.
However, Rao continued to work at Ozy securing investments in the media company.
After the bombshell article came out, an internal investigation into Rao’s conduct was launched and the board hired New York-based firm law firm Paul, Weiss, Rifkind, Wharton and Garrison to investigate its business practices.
Watson said this week the company was reopening following the scandal and that it was its ‘Lazarus moment’
Watson then told staff in an emotional phone call he was shutting the company and they were all out of work.
Then, in a total reversal, Watson announced the company was reopening, describing the news as its ‘Lazarus moment.’
Meanwhile, the law firm probe has also been axed after several board members stood down.
Other allegations have also emerged about its treatment of staff with creative director Eva Rodriguez claiming Rao once demanded to see her medical records when she suffered a panic attack and extreme depression after working 18-hour days at the firm.
Creative director Eva Rodriguez (above) also claimed Rao once demanded to see her medical records when she suffered a panic attack after working 18-hour days at the firm
Eva Rodriguez, 24, told CNN Business she was rushed to the ER and was later admitted into a six-week outpatient program for ‘extremely depressed people’ after the panic attack in late 2020.
Despite being told by doctors she needed time off, Watson allegedly told her ‘how critical my role is to the show’ and Rao then called her doctor’s office posing as Ozy’s Human Resources director.
‘It’s like a cult,’ Rodriguez said of the company.
Several employees have now spoken out to say the company did not appear to spend its COVID-19 relief loans on what it was designed for – for payroll and saving jobs.
Ozy received two PPP loans for $3.75 million and $2 million.