The co-founders of Outcome Health and several former executives have been charged by the Department of Justice (DOJ) in a $1 billion fraud scheme targeting clients, lenders and investors.
The DOJ filed the criminal indictment in Chicago this week, charging Rishi Shah and Shradha Agarwal, the co-founders who left the point-of-care advertising company in 2018, along with Brad Purdy, former chief operating officer and chief financial officer and Ashik Desai, former executive vice president of business operations.
At the same time, the Securities and Exchange Commission (SEC)—which worked with the DOJ on its indictment—added the executives to its civil complaint, alleging they falsely portrayed the company’s success to investors and auditors to the tune of $487 million.
RELATED: FBI targeted Outcome Health and its co-founders in fraud probe, affidavit shows: report
The DOJ filing alleges that from 2011 to 2017, the executives bilked mostly pharma companies by selling them “tens of millions of dollars of advertising inventory that did not exist.” The indictment claims the faux sales resulted in inflated financial statements that were then used to raise financing in 2016 and 2017.
Both the DOJ filing and the SEC filings lay out a detailed and sophisticated scheme in which the former executives and employees sold advertising inventory they didn’t have, but then charged the pharma clients in full. To conceal the under-delivery of ads, the DOJ said the group then “falsified affidavits and proofs of performance to make it appear the company was delivering advertising content to the number of screens in its clients’ contracts.”
The SEC lawsuit contends the defendants raised $487 million from August 2016 to July 2017 from 13 institutional investors, all the while deceiving them about the company’s performance. The SEC says the defendants provided “materially false financial statements and fake ROI studies to prospective investors and provided misleading information during in-person meetings.” Additionally, it asserts that to cover up the scheme, defendants then “lied to Outcome’s auditors.”
The SEC is asking for the return of allegedly ill-gotten gains plus interest, penalties and injunctive relief, and for the defendants to be barred from holding officer and director positions.
Shah's lawyer released a statement that said Shah is being "scapegoated for the wrongdoings of others who have cut deals with the Government." Shah will plead not guilty and "looks forward to his day in court and the opportunity to clear his name." A lawyer for Agarwal told Reuters she denies the allegations and intends to plead not guilty to all charges.
Shah, Agarwal and Purdy’s DOJ arraignment in Chicago federal court has not been scheduled yet, but Desai will appear Dec. 3. Two other employees, Kathryn Choi and Oliver Han, are charged only in the DOJ suit with conspiracy to commit wire fraud.
RELATED: Revamped and renewed Outcome Health looks to spark change in point-of-care industry
The current team at Outcome Health has worked hard to distance the company from the former founders and executives named in the criminal and civil suits. The company inked its own non-prosecution agreement with the DOJ a few weeks ago, not only because the accused employees are no longer involved with the company but also because Outcome overhauled its compliance and campaign-reporting policies and made restitution to clients.
CEO Matt McNally said at the time it was “one of the final pages of the past and previous administration that we are very happy to turn.”