Newsweek Former Co-Owner Arraigned in New York on Fraud Charges

(Bloomberg) -- Newsweek Media Group and its former co-owner were charged with fraud for allegedly using financing earmarked for high-capacity computer servers to fund day-to-day operations.

Etienne Uzac borrowed $4.37 million in 2015 and 2016 and had most of the money transferred to company accounts, while buying fewer and lesser quality servers than the lenders were told, according to a grand jury indictment unsealed Wednesday in New York state court in Manhattan.

Uzac and William Anderson, former publisher and chief executive of Christian Media Corp., created a fictitious auditor by the name of Karen Smith to provide false financial information to the equipment lenders, according to the indictment. CMC, a Washington-based faith-based online publisher that co-owns Newsweek, ran an identical scam, according to prosecutors.

Uzac and Anderson were arraigned in Manhattan criminal court Thursday after being led to the courtroom door in handcuffs. Both pleaded not guilty, and lawyers entered not guilty pleas on behalf of the corporate entities that were charged -- IBT Media, Christian Media and Oikos Networks Inc. Bail for Uzac and Anderson was set at $250,000 each.

“The equipment lenders in question have been repaid in full along with interest and fees,” Uzac said in a statement. “There were no victims, and my intention never was to harm anyone. The fact that the Manhattan DA are inserting themselves where they should not and are defending financial institutions who themselves are not pressing any charges nor have expressed any issues, is a clear case of government power abuse.”

Assistant District Attorney Solomon Shinerock said the defendants engaged in "Ponzi scheme-like fraudulent transactions" to use the proceeds of equipment loans to make payments to lenders. He noted that while the loans have been repaid, the repayments were made with money from foreign bank accounts that had no relationship to the defendants. The loans were repaid only after the investigation had started, Shinerock said.

Laura Goldberg, a spokeswoman for Newsweek, said the magazine, which was recently spun off from Newsweek Media Group, wasn’t indicted and is a separate company from IBT Media, the other company spun off from Newsweek Media Group. The indictment identified the company as IBT Media Inc., also known as Newsweek Media Group.

Representatives of Christian Media in Washington couldn’t immediately be reached for comment.

--With assistance from Chris Dolmetsch and Greg Farrell.

To contact the reporters on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net;Josh Saul in New York at jsaul15@bloomberg.net;Christian Berthelsen in New York at cberthelsen1@bloomberg.net

To contact the editors responsible for this story: Elizabeth Wollman at ewollman@bloomberg.net, Joe Schneider, Peter Blumberg

©2018 Bloomberg L.P.