President Trump on Friday commuted the sentence of Carlos Watson, a co-founder of the now-defunct digital media company Ozy Media, on the day he was set to surrender to prison, three people familiar with the matter said.

Mr. Watson was sentenced in December to almost 10 years in prison for trying to defraud investors and lenders by lying about the company’s finances. His sentence came after a federal jury last summer convicted Mr. Watson and Ozy Media of conspiracy to commit securities and wire fraud. The jury also convicted Mr. Watson of identity theft, following a two-month trial during which witnesses detailed an impersonated phone call, fabricated contracts and misleading claims about Ozy’s earnings from 2018 to 2021.

A federal judge had also ordered Mr. Watson and Ozy to pay $96 million in restitution and forfeiture. As part of Mr. Trump’s commutation, Mr. Watson and Ozy will no longer have to pay those financial penalties, the people said.

Mr. Watson had pleaded not guilty and continued to assert his innocence up until he was sentenced to 116 months. His commutation was first reported by CNBC.

Mr. Watson did not immediately respond to a request for comment.

Mr. Watson started Ozy in 2013, publishing news articles and newsletters before venturing into podcasts and television productions. The start-up secured commitments from prominent investors at a time when digital publishers, like BuzzFeed and Vice, attracted billions of dollars in investments that largely didn’t pan out.

Throughout the legal proceedings, Mr. Watson denied the fraud allegations. In court, his lawyers argued that his representations to investors had been based on good-faith assessments of Ozy’s finances, and they shifted the blame for any fraudulent activity onto other former Ozy employees. When he took the stand at his trial, Mr. Watson said that he did not intentionally inflate revenue estimates, but rather presented the types of service-based income typical of a “scrappy young company” in its early years.

Mr. Watson, at his sentencing hearing in December, reiterated his stance that the government selectively prosecuted him because he is a Black man.

Samir Rao, the other founder of Ozy, and Suzee Han, a former Ozy chief of staff, pleaded guilty in 2023 to fraud charges and testified against Mr. Watson.

At the heart of the case was a 2021 fund-raising call during which Mr. Rao misled Goldman Sachs employees by impersonating a YouTube executive, as first reported by The New York Times. Prosecutors contended that Mr. Watson had helped set up the call, citing text messages he sent to Mr. Rao that, they claimed, amounted to a script for what to say. Mr. Watson denied any responsibility.

Witnesses also testified that Mr. Watson had misrepresented Ozy’s finances to secure investments, inflating revenue figures and presenting misleading claims of commitments from Oprah Winfrey and Live Nation Entertainment.

Tyler Pager contributed reporting.