Topline: Former executives and two former employees of Outcome Health, a Chicago-based health tech startup once valued at over $5 billion, were indicted in a scheme to defraud the company’s clients and investors by inflating revenue and key metrics about how effective the company’s product was, according to charges unsealed Monday.
Former CEO and founder Rishi Shah, Co-founder Shradha Agarwal and former COO and CFO Brad Purdy were all charged with various counts of mail fraud, wire fraud and bank fraud related to the scheme. Former vice president Ashik Desai and two other former employees were charged with wire fraud.
Outcome Health places television screens and tablets inside doctors offices and waiting rooms, and then sells ads on those screens to clients looking to get in front of patients. Pharmaceutical companies, such as Biogen and Pfizer, made up the bulk of the company’s sales.
According to the indictment, from 2011 to 2017 Shah and other executives allegedly sold pharmaceutical companies advertising space on screens that didn’t exist. To conceal the fact that ad campaigns were often under-delivering, former executives falsified documents and inflated numbers on how frequently patients engaged with Outcome Health’s tablets.
The inflated purchase orders and engagement metrics led to Outcome Health overstating its revenue in 2015 and 2016, the indictment alleges. The overstated revenue number was allegedly used to raise a funding round from Goldman Sachs, Google-affiliated CapitalG and the investment company started by Illonois Governor J. B. Pritzker, valuing the company at a stunning $5.49 billion in 2017.
Outcome Health’s current CEO, Matt McNally, said that the misconduct occurred under previous management and that it is cooperating with the Justice Department’s investigation. Private investment firm Littlejohn bought a majority stake in Outcome in May.
Shah and Agarwal, who now work for a VC firm in Chicago called JumpStart Ventures, according to LinkedIn, did not immediately respond to request for comment from Forbes. Purdy and Desai could not be reached for comment.
Crucial quote: “The charges announced today demonstrate that lies and deception cannot serve as the basis for any company, including start-up companies, to falsely grow revenue for additional capital and private gain,” said Principal Deputy Assistant Attorney General John P. Cronan.
Key background: Shah dropped out of Northwestern to co-found what was originally called ContextMedia in 2006. When Context purchased a rival, Accent Health, in 2016, the company changed its name to Outcome Health and quickly became a hot commodity with what it said was nearly $200 million in sales. After Forbes and the Wall Street Journal published stories that questioned whether Outcome was delivering what they promised to pharmaceutical companies, Shah and Agarwal resigned in 2017.