Citing whistleblower claims, top investors sue Outcome Health for fraud

Outcome Health
Advertisers are reportedly halting or suspending campaigns with Outcome Health's in-office advertising platform amid allegations of overstated results.

Outcome Health investors sued the company and its founders for fraud Tuesday weeks after allegations that it had overcharged clients and misled them about their campaigns. The in-office ad firm has lost at least one high-profile client and is fighting to retain others as it investigates.

The lawsuit was filed in New York state court by a group of investors, including Goldman Sachs and Google parent company Alphabet, and alleges their investment of nearly $500 million was based on false information provided to them by Outcome and its founders, according to media reports.

The lawsuit names the company and co-founders Rishi Shah and Shradha Agarwal, according to the Chicago Tribune. It comes a month after the Wall Street Journal reported whistleblower allegations that the physician in-office advertising platform had misled some advertisers by overcharging them or manipulating campaign results.

The lawsuit also claims that Shah and Agarwal themselves may have taken money out of the company amid the crisis. The plaintiffs are seeking a temporary restraining order to freeze $225 million in funds to prevent their transfer outside the company.

Agarwal and Shah vigorously denied the plaintiffs' claim in a Wednesday statement and in court filings Wednesday morning: "We had the right to take out this money, and we did not. Instead, we decided to make the funds available for the company's continued growth towards its mission. ... The investors’ money grab simply is inexcusable and disappointing."

Outcome Health also responded to the lawsuit with a statement that reads in part, "This is the latest negotiating ploy misusing the courts in the interest of enriching Goldman Sachs at the expense of the company, its employees and its customers as there is no merit to the claims."

An Outcome executive spoke with FiercePharma Tuesday before the lawsuit news broke and said then that investors were standing behind the company.

"I'm not privy to those specific conversations, that would be our CFO and CEO, but my understanding is that the investors continue to be behind us and see the value of the platform and want to support what we're doing," said Roger Sawhney, Outcome's senior VP life sciences strategy and business development

Sawhney initially spoke with FiercePharma regarding reports of advertiser pullbacks earlier this week. He said the suspension of campaigns was among a “very small number of clients.” Even as that happened, millions of dollars in new business had been struck, he said.

Bristol-Myers Squibb did not renew its contract with Outcome for this year or next, while advertising agency parent companies Omnicom Group, Interpublic Group, Havas and Publicis Groupe are recommending that their clients hold off on advertising until third-party audits are complete, according to the WSJ.

The controversy comes as Outcome Health has experienced rapid growth with first-round funding of more than $500 million in May, including the investments from the lawsuit plaintiffs. The company also has announced a new downtown Chicago headquarters and said it plans to add 2,000 jobs within five years. In August, Outcome Health was ranked No. 11 on a list of the on the most valuable startups in the U.S., according to PitchBook, with an estimated valuation of $5 billion.

Editor's note: This story was updated with information from court documents.