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Ozy Media employees did not receive $ 5.7 million in PPP loans: former employees

Carlos Watson is recording a TV debate for Take On America With OZY in The Bently Reserve on October 29, 2018 in San Francisco, California.

Kimberly White | Getty Images

Several former employees of Ozy Media say there is no evidence that the millions of dollars the company received through a federal Covid utility to protect payslips ever went to save jobs or increase wages.

Ozy, who has been investigated after several reports describing questionable business tactics, applied for two loans through a program called the Paycheck Protection Program, or PPP, according to the Small Business Administration’s website.

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

It is unclear how Ozy used the PPP funds. Ozy Media’s co-founder and CEO, Carlos Watson, did not return further emails with specific questions about how the company spent the money or who decided how the money would be spent. He also did not answer a question as to why Ozy applied for the second loan. The company claimed to have $ 50 million in revenue by 2020. It laid off more employees and cut salaries earlier that year.

Ozy announced it was closing its doors last week after a series of reports cast doubt on the company’s business practices. The New York Times described a February event – the same month Ozy received his second PPP loan – in which co-founder and chief operating officer Samir Rao imitated a YouTube boss in a conference call with Goldman Sachs in hopes of securing a $ 40 million investment .

During an interview on the syndicated radio program “The Breakfast Club” on Tuesday, Watson said he has asked Rao to resign, despite the fact that the incident stems from a “mental health problem”.

While it was not uncommon for media companies to participate in PPPs, Ozy specifically earmarked his loans for pay. Full-time employees who worked for Ozy told CNBC that they had no idea where the money went and that it was not going to restore their salaries after they got pay cuts.

“No one knows me, and I’m talking to at least 10 people. No one had gotten anything back for them in terms of salary after they received these PPP loans,” according to a former employee who left Ozy earlier this year.

“I must have followed up with Samir [Rao] four to six times, “said another in regards to reinstating pay.” It was discouraging. You work so hard and give your life for this company, to be fired and respected. ”

The former Ozy employees who spoke to CNBC worked in various departments across 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 his second PPP loan – that his business was profitable for the first time in 2020 after receiving $ 50 million in revenue. The Times first reported that Ozy has inflated its traffic numbers and has a history of overestimating its success. Watson told CNBC earlier this week that Ozy over-marketed itself about 20% of the time.

“It’s up to me and I own it,” Watson said Monday.

Axios first reported that Ozy fired about 20% of its employees in early 2020. The news media also reported that Ozy implemented wage reductions of around 19%. CNBC has since learned that some employees took even larger reductions, including one whose salary was cut by 35%, according to two people familiar with the matter.

Watson announced Monday that Ozy planned to keep the doors open, days after he told employees the company would close. Also on Monday, LifeLine Legacy Holdings, which claims to have invested $ 2 million in Ozy Media, filed a lawsuit against the company alleging “fraudulent, misleading and illegal conduct.”

Fortune reported Wednesday that Watson has reached out to employees and asked them to return to Ozy.

OPP loan status

The PPP, initiated under the administration of then-President Donald Trump, generated nearly $ 800 billion in forgiving loans to small businesses that struggled as coronavirus pandemic rasede.

The SBA website says that Ozys PPP loans, which were officially distributed by Silicon Valley Bank, are in progress and that they “have not yet been fully repaid or remitted.” For its first loan, Ozy identified its industry as “custom computer programming services,” according to the SBA website. Second, the Ozys industry is described as “Internet publishing and broadcasting and web search portals.”

Ozy claimed that the vast majority of the loan money would be used for salaries and that the money helped the company maintain 143 jobs, according to the February 202 loan document. Watson said in Tuesday’s interview with “The Breakfast Club” that Ozy had “75 -plus “full-time employees before Friday’s shutdown.

Watson also said in that interview that he has not taken pay since the start of the pandemic to keep more people in his company employed.

Representatives of Ozy and Watson did not return requests for comment. Representatives of Silicon Valley Bank referred questions about the loans to Ozy and declined to comment further. National Public Radios David Folkenflik tweeted Wednesday that Watson’s new spokesman, Phil Singer, had resigned after just four days on the job.

Watson has spoken to several outlets, including CNBC’s “Squawk Box,” since Ozy’s board told employees it would close, but he did not respond to further requests for comment on the article. CNBC also sent a comprehensive list of questions to Watson, who did not return a request for comment prior to publication.

A spokeswoman for the SBA would not comment on the loans to Ozy, but gave an explanation of how loans like these were granted.

“PPP is a delegated lending process in which participating lenders act as an agent for the government to approve and disburse loans,” SBA spokeswoman Shannon Giles told CNBC in an email Tuesday. “A participating lender submits a PPP loan application, which it has already approved, to the SBA for the federal guarantee. SBA has no details on PPP loan payments. It is a third-party transaction between lender and borrower. Each PPP- The participating lender must implement the program. to its borrowers within the rules and program guidelines assigned to it by its Congress. “

Ozy Fest costs

The 2020 loan came a year after Ozy Media was to host its annual Ozy Fest in New York at Central Park’s Great Lawn. Even if it was in the end canceled due to the heat that summer, The Times reported that top tickets for the event were sold for $ 400. The festival was to feature music by John Legend, food by well-known chefs including Rachael Ray and comedy by “Daily Show” host Trevor Noah.

CNBC’s Andrew Ross Sorkin directly asked Watson in 2019 how much the company would have to pay the city of New York to host the extravaganza.

“You’re just saying I’m with Andrew Ross Sorkin and everything works, so it’s easy that way,” Watson replied. “One of the things we’re really happy about is that the city has embraced it,” Watson added. He also said in the same interview that they expected 100,000 people to attend the event in 2019.

In fact, Ozy paid the city at least up to $ 2 million for the use of Central Park’s large lawn, according to a person who was briefed on the matter. The company pockets a similar amount on marketing the festival. It is unclear what happened to the 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 familiar with some sort of “swag”. When Watson was asked about this year’s “swag bag”, Watson said it contained “unusual VR” [virtual reality] headset. “

Rodriguez’s press representatives have not yet responded to CNBC’s requests for comment.

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

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

Watson also denied on Monday that he called Sharon Osbourne a friend.

“I did not say she was a friend. You know what? Play the tape, then. Please play the tape. You know what, put on the tape,” Watson said Monday.

The tape reveals that Watson actually described the Osbournes family as friends during the 2019 interview: “Funny fact: our friend Ozzy and Sharon sued us briefly, and so we decided to be friends, and now they’re investors in Ozy.”

SE: Ozy Media CEO Carlos Watson calls Osbournes “friends” during the 2019 interview.

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