The founder of the troubled startup Ozy Media, Carlos Watson, has been detained on federal fraud charges.
Days prior to the arrest, Samir Rao, a former company executive, pleaded guilty to various fraud-related charges.
After a New York Times investigation revealed Mr. Rao had attempted to defraud investors by posing as a YouTube executive, Ozy Media was shut down in 2021.
Mr. Watson allegedly "directed a scheme to defraud investors" of millions of dollars, according to federal prosecutors.
The Securities and Exchange Commission and the US Justice Department have both opened investigations into the business.
Mr. Watson, a former banker for Goldman Sachs and a host for MSNBC, established Ozy Media in California in 2013. The company created podcasts, television programs, live events, and profiles of up-and-coming artists and fashion trends that were all left-leaning.
In 2020, it was worth $159m (£132m).
However, according to federal court documents submitted this week, Mr. Watson lied to investors about the company's revenue and falsely claimed that high-profile companies and celebrities had made investments despite knowing that Ozy Media was "drowning in debt.".
Ozzy Osbourne's wife Sharon accused Mr. Watson of making false claims that the couple had invested in the company, calling him "the biggest schmuck I have ever seen in my life" in a 2021 interview with CNBC.
The Wall Street Journal was the first to report that Mr. Watson was detained on Thursday and would soon be arraigned in federal court in Brooklyn, New York, on charges of conspiring to commit securities fraud and conspiring to commit wire fraud.
His attorney has been contacted by the BBC for comment.
The New York Times reported that Mr. Rao had impersonated a YouTube executive during a call with Goldman Sachs, bragging about YouTube's successful relationship with Ozy as the bank was considering making an investment. This was the beginning of Ozy Media's demise.
Mr. Watson acknowledged the incident's veracity but asserted that Mr. Rao's mental health issues were to blame. He continued by saying that even though Goldman Sachs ultimately decided against investing, no harm was done.
Despite previously denying to the media that he was there, prosecutors claim that Mr. Watson was present during the call and was "texting Rao directions of what to say.".
When confronted with inquiries from investors, Mr. Watson and Mr. Rao "on multiple occasions" pretended to be executives of media companies in order to conceal prior fraudulent statements, according to the prosecution.
On Tuesday, Mr. Rao pleaded guilty to conspiracy to commit securities fraud, conspiracy to commit wire fraud, and conspiracy to commit identity theft. He also admitted to the judge that he had misled investors and inflated the company's financial standing.
Suzee Han, the former chief of staff for the company, also admitted guilt to conspiring in securities fraud and wire fraud, according to court records from a federal court.
