Newsweek’s Ex-Parent Company Charged With Defrauding Lenders
In a $10 million scheme to help the struggling company survive, prosecutors allege.
Newsweek’s former parent company has been charged with defrauding lenders as part of an alleged $10 million scheme to help the iconic news organization stay in business.
An indictment filed by the New York district attorney's office on Wednesday and obtained by The Daily Beast alleges that top executives from IBT Media and Christian Media Corporation fabricated financial statements to secure about $10 million in loans.
“The objects of the conspiracy were fraudulently to obtain financing from financial institutions, divert the proceeds of the financial institutions, and conceal its origins in order to fund day to day operations and meet other needs unrelated to the state purpose of the financing,” the indictment said.
The indictment was first reported Wednesday evening by The Wall Street Journal.
The loans, which executives claimed would go toward expensive computer servers, were then laundered through corporate bank accounts and eventually used to pay back previous financiers or help with operating expenses, prosecutors allege.
While Newsweek is now a separate entity from IBT Media, the company owned the magazine during the time of the alleged fraud scheme, which prosecutors say ran from March 2015 until October 2016.
All told, IBT Media received more than $8.6 million, while Christian Media Corporation netted $1.5 million, according to the 10-count indictment, which was unsealed Wednesday in Manhattan Supreme Court.
The indictment lists IBT Media and its co-founder, Etienne Uzac, as defendants. The Christian Media Corporation and William Anderson, its former chief executive and publisher, are also named, along with a computer company called Oikos Networks, Inc.
Oikos allegedly served as the primary conduit for the money being funneled from lenders to Newsweek’s then-parent company.
Prosecutors alleged in the indictment that Uzac and Anderson invented a false auditor to green-light financial statements, creating a fake identity, phone number, and website for the auditor.
Uzac released a statement late Wednesday denying the allegations and attributing them to “government overreach and power abuse.” “I believe this very aggressive investigation is fueled by retaliation against me and my news media company for having uncovered that the Manhattan District Attorney Cy Vance Jr. declined to press charges against Harvey Weinstein after his attorney paid Vance money,” Uzac wrote.
Uzac and Anderson are scheduled to appear in Manhattan court on Thursday, where they’ll be arraigned on charges of money laundering, scheming to defraud, falsifying business records, and conspiracy. Anderson will also be charged with contempt for failing to produce documents after being subpoenaed.
The indictment is a stunning development that follows months of turmoil at IBT Media, whose headquarters were raided in January by more than a dozen investigators from the New York district attorney’s office after authorities began investigating the company’s finances.
In February, several top staff members at Newsweek (which was previously owned by IAC, The Daily Beast’s parent company) were fired. The ousted staffers included editor in chief Bob Roe, executive editor Ken Li, and reporter Celeste Katz, who worked on stories about the raid and allegations that the company was buying traffic and engaging in advertising fraud.
Numerous staffers departed in the coming months, expressing outrage at top company executives over the handling of the publication's finances. In an hour-long meeting in February, top editors pressed owner Johnathan Davis about what he knew about the DA’s probe into Newsweek.
“So you should be honest with everybody in this room: Are we running a money laundering operation?” a former breaking news editor asked during the meeting. “Are we evading taxes? You need to tell us that because we can’t work here if you’re a liar.”
During a subsequent meeting with remaining editors in February, Newsweek Media Group Chief Content Officer Dayan Candappa joked about the dire state of the company's finances.
“The idea that Newsweek Media Group is legally throwing money to the church is probably a joke,” he said, referencing the notion that Newsweek had enough money to funnel anything to Olivet University, which had ties to the company's former owners. “There’s no money. I can tell you that. There is no money.”
–With additional reporting by Pervaiz Shallwani