What You Should Know:
– Three former executives of Outcome Health, a Chicago-based health tech startup, were sentenced for their roles in a massive fraud scheme that defrauded clients, lenders, and investors of an estimated $1B.
– The case was investigated by the FBI and FDIC-OIG with assistance from the U.S. Securities and Exchange Commission. The prosecution was handled by the Department of Justice’s Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Northern District of Illinois.
– This sentencing underscores the significant consequences of corporate fraud. The actions of these executives not only defrauded investors and lenders but also potentially undermined trust in the healthcare technology sector.
Scheme Targeted Multiple Groups
- Clients: Rishi Shah (co-founder and former CEO), Shradha Agarwal (co-founder and former president), and Brad Purdy (former COO and CFO) allegedly sold advertising clients space on devices in doctor’s offices that Outcome didn’t actually have. They then under-delivered on promised advertising campaigns but still billed clients as if they had received full service. The scheme targeting clients reportedly ran from 2011 to 2017 and resulted in at least $45M of overbilled advertising.
- Lenders and Investors: The under-delivery of advertising services led to a significant overstatement of Outcome’s revenue in 2015 and 2016. Purdy allegedly fabricated data to conceal this under-delivery from auditors, allowing the company to use inflated revenue figures to secure debt financing totaling $485M and equity financing of $487.5M in 2016 and early 2017. Shah and Agarwal reportedly used these inflated financials to benefit personally through dividends.
Sentences for Executives
- Rishi Shah: 7 years and 6 months in prison
- Shradha Agarwal: 3 years in a halfway house
- Brad Purdy: 2 years and 3 months in prison
Additional Guilty Pleas
Three other former Outcome employees pleaded guilty to related charges prior to trial:
- Ashik Desai (former chief growth officer): 1 count of wire fraud
- Kathryn Choi (former senior analyst): Conspiracy to commit wire fraud
- Oliver Han (former analyst): Conspiracy to commit wire fraud
“Outcome’s former executives deceived their clients, their auditor, their lenders, and their investors for years,” said Principal Deputy Assistant Attorney General Nicole M. Argentieri, head of the Justice Department’s Criminal Division. “Their sentences should serve as yet another reminder that ‘faking it until you make it’ is not an acceptable practice for any business, whether that company is a technology start-up or a well-established corporation. Lying about your revenue to obtain customers or financing is fraud, plain and simple. The Criminal Division is committing to holding companies and their executives accountable for their misconduct.”
