Outcome Health co-founders Rishi Shah and Shradha Agarwal were charged in federal court Monday for their role in a "massive fraud" scheme where Outcome clients were allegedly over-billed for ads that were never delivered, and revenue figures were allegedly falsified in an effort to raise nearly half a billion dollars from outside investors.
Shah and Agarwal were named alongside former Outcome CFO Brad Purdy and former executive vice president Ashik Desai in the complaint, which includes 26 counts of fraud. The criminal indictment was unsealed today in U.S. District Court.
Shah and Agarwal were also added Monday to an SEC complaint that was filed last week, charging the two with fraud. Last month, Outcome Health agreed to pay $70 million as a result of a Department of Justice fraud investigation.
Outcome Health, founded originally as Context Media, sells ads on screens in doctors' office waiting rooms and on exam room wallboards. It became Chicago's most valuable tech startup in 2017 when it raised $487 million at a roughly $5 billion valuation. It was sued by its investors for fraud later that year after the Wall Street Journal reported that several Outcome employees misled advertisers on the effectiveness of the company’s ads.
The federal indictment alleges that Shah, Agarwal, Purdy, Desai and other Outcome employees lied about the number of screens clients' ads were running on, falsely inflated engagement metrics, inflated revenue numbers and used those inflated financial statements to obtain a $110 million loan in April 2016, a $375 million loan in December 2016, and the $487 million equity investment it received in 2017. Backers in that round included Goldman Sachs, Alphabet and Pritzker Group Venture Capital.
The indictment also alleges that the four top Outcome executives ignored whistleblowers who raised concerns about the fraud, hid advertising delivery problems from auditors, and knowingly sold inventory to advertisers that Outcome didn't have.
In the SEC complaint, prosecutors allege that Outcome overstated its revenue by at least $14.3 million in 2015 and $30 million in 2016.
"Today's action seeks to hold Outcome Health's most senior executives accountable for an alleged massive fraud," Steven Peikin, co-director of the SEC's Division of Enforcement, said in a statement. "We charge that these C-suite officers defrauded investors out of hundreds of millions — and the co-founders lined their own pockets— through blatant lies about the company's financial and business performance."
The complaint states that of the $487 million equity investment, $225 million went directly to Shah and Agarwal.
The complaint states that each of the four Outcome employees "knew about the vast consumer fraud at the heart of Outcome’s business, and each helped to perpetuate it." The SEC complaint seeks the return of allegedly ill-gotten gains plus interest, penalties, and looks to bar the Outcome executives from serving as an officer or director of a public company.
Attorneys representing both Shah and Argawal denied the allegations. “To be clear, Shradha never committed fraud and never participated in any conspiracy,” said Christina M. Egan, a partner at law firm McGuireWoods, according to the Tribune.
"Mr. Shah will plead not guilty to these charges because he is, in fact, not guilty of any of them," said Shah's attorney William Burck. "He looks forward to his day in court and the opportunity to clear his name."
