Ozy Media Employees Failed To Get $ 5.7 Million In PPP Loans: Former Staff

Carlos Watson records a televised debate for Take On America With OZY at Bently Reserve on October 29, 2018 in San Francisco, California.

Kimberly White | Getty Images

Several former Ozy Media employees claim there is no evidence the millions of dollars the company received under a federal Covid relief program to protect paychecks ever went to save jobs or raise wages.

Ozy, which has come under scrutiny after numerous reports detailing questionable business tactics, applied for two loans through a program called the Paycheck Protection Program, or PPP, according to the Small Business Administration website.

Ozy’s first loan, in the amount of $ 3.75 million, was approved in April 2020, a month after the US government passed a $ 2 trillion coronavirus relief bill . The company was approved for an additional $ 2 million in February 2021.

It is not known how Ozy used the PPP funds. Ozy Media co-founder and CEO Carlos Watson did not return multiple emails with specific questions about how the company used the money or who decided how the money would be used. He also did not respond to a question about why Ozy requested the second loan. The company claimed it had $ 50 million in revenue in 2020. It laid off several employees and cut wages earlier that year.

Ozy announced it was shutting down last week after a series of reports questioned the company’s business practices. The New York Times detailed an event in February – the same month Ozy received his second PPP loan – where co-founder and COO Samir Rao impersonated a YouTube executive during a conference call with Goldman Sachs in hopes of securing a $ 40 million investment.

During an interview with the syndicated radio show “The Breakfast Club” on Tuesday, Watson said he asked Rao to step down, although he claimed the incident stemmed from a ” Mental Health”.

While it was not uncommon for media companies to participate in the PPP, Ozy specifically earmarked its payroll loans. Full-time employees who worked for Ozy told CNBC they did not know where the money had gone and that it had not been used to restore their wages after suffering wage cuts.

“No one that I know of, and I speak to at least 10 people. No one has received anything as a salary after receiving these PPP loans,” according to a former employee who left Ozy earlier this year.

“I had to follow up with Samir [Rao] four to six times, ”said another of the reinstatement of wages. “It was disheartening. You work so hard and give your life to this company, to be fired and disrespectful. ”

Former Ozy employees who spoke to CNBC worked in various departments at the company. They spoke on condition of anonymity to discuss private matters and to avoid retaliation.

Watson told Axios in January 2021 – a month before taking out the second PPP loan – that his business was first profitable in 2020 after making $ 50 million in revenue. The Times first reported that Ozy had inflated his traffic numbers and used to exaggerate his success. Watson told CNBC earlier this week that Ozy oversold himself about 20% of the time.

“It’s mine, and I recognize it,” Watson said Monday.

Axios first reported that Ozy laid off around 20% of its staff at the start of 2020. The outlet also reported that Ozy implemented pay cuts of around 19%. CNBC has since learned that some employees have suffered even greater cuts, including one whose salary was cut by 35%, according to two people familiar with the matter.

Watson announced Monday that Ozy plans to keep its doors open, just days after announcing to employees that the company would be shutting down. Also on Monday, LifeLine Legacy Holdings, which claims to have invested $ 2 million in Ozy Media, filed a lawsuit against the company, alleging “fraudulent, deceptive and illegal behavior.”

Fortune reported on Wednesday that Watson had contacted employees asking them to return to Ozy.

PPP loan status

The PPP, launched under the administration of then-President Donald Trump, generated nearly $ 800 billion in forgivable loans for struggling small businesses like the the coronavirus pandemic has raged.

The SBA website says Ozy’s PPP loans, which were officially distributed by Silicon Valley Bank, are ongoing and each has “not yet been fully repaid or canceled.” For its first loan, Ozy identified its industry as “custom computer programming services,” according to the SBA website. For the second loan, Ozy’s industry is described as “the Internet publishing and distribution and Web research portals”.

Ozy claimed the vast majority of the loan money would be used for payroll and the money helped the company keep 143 jobs, according to the February 2021 loan document. Watson said in the interview with Tuesday with “The Breakfast Club” that Ozy had “over 75” full-time employees before Friday’s closing.

Watson also said in this interview that he had not been paid a salary since the start of the pandemic in order to keep more people employed at his company.

Representatives for Ozy and Watson did not return requests for comment. Representatives from Silicon Valley Bank asked about the loans to Ozy and declined to comment further. David Folkenflik of the National Public Radio tweeted Watson’s new spokesperson Phil Singer stepped down on Wednesday after just four days on the job.

Watson has spoken to several outlets, including CNBC’s “Squawk Box,” since Ozy’s board told employees the company would be shutting down, but has not responded to multiple requests for comment on this article. CNBC also sent a long list of questions to Watson, who did not return a request for comment until the post.

A spokeswoman for the SBA declined to comment on the loans to Ozy, but explained how such loans were made.

“PPP is a delegated lending process, in which participating lenders act as the government agent to approve and disburse loans,” Shannon Giles, spokesperson for the SBA, told CNBC on Tuesday. “A participating lender submits a PPP loan application, which it has already approved, to the SBA for the federal guarantee. The SBA does not have details on PPP loan disbursements. This is a third-party transaction. between the lender and the borrower. Each PPP – the participating lender must implement the program with its borrowers in accordance with the program rules and guidelines granted by Congress. “

Ozy festival costs

The 2020 loan came a year after Ozy Media was set to host its annual Ozy Fest in New York City on the Great Lawn in Central Park. Although it was ultimately canceled due to the heat that summer, The Times reported that the best tickets for the event were selling for $ 400. The festival was to feature music by John Legend, dishes by celebrity chefs including Rachael Ray and a comedy by “Daily Show” host Trevor Noah.

CNBC’s Andrew Ross Sorkin asked Watson directly in 2019 how much the company has to pay New York City to host the extravagance.

“You just say I’m with Andrew Ross Sorkin and everything is going well, so it’s easy like that,” Watson replied. “One of the things we really appreciate is that the city embraced it,” Watson added. He also said in that same interview that they expected 100,000 people to attend the 2019 event.

In fact, Ozy paid the city at least up to $ 2 million for the use of the Central Park Great Lawn, according to a person briefed on the matter. The company paid a similar amount for the marketing of the festival. It is not known what happened to this money after the event was canceled.

Former baseball superstar Alex Rodriguez, who appeared with Watson in the interview, suggested at the time that at least some festival-goers would be aware of some sort of “swag.” Asked about this year’s “swag bag”, Watson said it included “an unusual virtual reality [virtual reality] helmets. “

Rodriguez press representatives have yet to respond to CNBC’s requests for comment.

Ozy Fest was also at the center of a legal puzzle for Watson who raised more questions about his company’s business model long after the case was settled. Music industry legends Sharon and Ozzy Osbourne sued the Ozy Fest name in 2017, claiming it was too close to the name of their music festival, Ozzfest. The parties eventually came to an agreement.

Then, in 2019, Watson claimed live on CNBC that Sharon and Ozzy Osbourne were friends and investors in his company after a year-long legal battle. Sharon Osbourne recently told CNBC that they had never been friends with Watson or investors in Ozy Media. In an interview broadcast on CNBC Monday, Watson said there was an agreement that the Osbournes would get around 50,000 Ozy shares as part of a settlement. Sharon Osbourne also called Watson a “crook”.

Watson also disputed Monday calling Sharon Osbourne as a friend.

“I didn’t say she was a friend. You know what? Play the tape, then. Please go ahead and play the tape. You know what, listen to the tape,” said Watson Monday.

The tape reveals that Watson did describe the Osbours as friends in the 2019 interview: “Fun fact: Our friend Ozzy and Sharon briefly chased us, then we decided to be friends and now they are investing in Ozy. “

WATCH: Carlos Watson, CEO of Ozy Media, calls the Osbournes “friends” in the 2019 interview.

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