Outcome Health has agreed to pay $70 million as a result of a Department of Justice fraud investigation that determined that the Chicago tech company intentionally deceived clients about the quality and quantity of its advertising.
The DOJ announced Wednesday that Outcome has agreed to a resolution where it will pay clients a total of $70 million and admit that it sold ad inventory it did not have. The DOJ statement says that from 2012 to 2017, former Outcome executives and employees perpetrated a scheme to defraud clients—mostly pharmaceutical companies—by selling advertising inventory it didn't have and reporting incorrect information on the effectiveness of the ads it did sell.
Outcome Health, founded originally as Context Media, sells ads on screens in doctors' office waiting rooms and on in-office wallboards. It was sued by its investors for fraud in 2017 after the Wall Street Journal reported that several Outcome employees misled advertisers on the effectiveness of the company's ads.
Even while Outcome was under-delivering on its ad campaigns, it still invoiced clients as if it had delivered in full, the DOJ investigation found. Outcome employees falsified affidavits and proofs of performance to make it seem as though it was correctly delivering advertising content, and also inflated metrics on how frequently patients engaged with Outcome’s devices. A company executive also altered a number of studies given to clients to make it seem that the ad campaigns were more effective than they actually were, according to the DOJ.
The statement added that Outcome's incorrect reporting on its advertising resulted in a "material overstatement of its revenue" in 2015 and 2016. Outcome used inflated revenue figures in its 2015 and 2016 audited financial statements to raise $110 million in debt financing in April 2016, $375 million in debt financing in December 2016, and $487.5 million in equity financing in early 2017, the company admitted.
As part of the settlement, the DOJ will not to prosecute Outcome. Outcome CEO Matt McNally said in a statement that the company is "thrilled to resolve this matter, as it enables us to move forward and focus on our mission to be the indispensable partner to patients, providers and industry partners during moments of care."
“For five years, employees of Outcome Health purposely failed to deliver on advertising campaigns and engaged in a pattern of misrepresentations to conceal their fraud,” Emmerson Buie Jr., special agent in charge of the FBI’s Chicago field office, said in a statement. “This resolution demonstrates the FBI’s commitment to working with its prosecutorial and investigative partners to ensure that justice is done.”
The nearly $500 million equity raise in 2017 vaulted Outcome to one of Chicago's buzziest and most promising startups. Investors in that round included Google parent company Alphabet, Goldman Sachs, and Chicago’s Pritzker Group Venture Capital---who all eventually sued the company for fraud.
Outcome’s CEO Rishi Shah and President Shradha Agarwal stepped down from the company in 2018 as part of its settlement with those investors. Outcome's lenders and investors, who were victims of the fraud scheme, were not part of the $70 million settlement as they're now part owners of the new company. Outcome recapitalized in May of this year after private equity firm Littlejohn acquired a majority stake in the company.
Most of the $70 million has already been made through a combination of cash payments and in-kind services, the statement says.
“Outcome’s payment of $70 million is an appropriate resolution for the corporate entity given the misconduct of executives and employees acting on its behalf,” Assistant U.S. Attorney Brian Hayes, chief of the criminal division for the Northern District of Illinois, said in a statement. “This resolution demonstrates that there are significant consequences for businesses whose executives and employees engage in fraud.”
