As expected, the co-founders of in-office health information/advertising firm Outcome Health today (Monday) pleaded not guilty in the Northern District of Illinois Federal Court in Chicago. Of a total of 26 counts in the Federal indictment, Rishi Shah, the company’s former CEO, has been charged with six counts of mail fraud, 12 counts of wire fraud and two counts each of bank fraud and money laundering. Shradha Agarwal, the former president, has a somewhat lighter charge count of six counts of mail fraud, nine counts of wire fraud and two counts of bank fraud. Both were released on bond: $20 million for Mr. Shah, $10 million for Ms. Agarwal. Crain’s Chicago Business, may require free registration.
The charges relate to deception layered around company performance as detailed in our 3 December article–overstatement of advertising placement and delivery, manipulating third-party data on patient engagement on Outcome’s tablets, and fraudulently stating results to auditors. This was used to leverage nearly half a billion of a total $1 bn raise by major firms such as Goldman Sachs, Alphabet, and the Pritzker fund.
Last week, we covered the pleas of Ashik Desai, former EVP of business operations/chief growth officer (guilty) and Brad Purdy, former COO/CFO (not guilty). Mr. Desai, interrupted from his graduate studies at Wharton, is cooperating with the prosecutors; Mr. Purdy is blaming Mr. Desai.
A podcasted discussion on Crain’s Daily Gist has expressed the opinion that some in tech and healthcare, especially in Chicago, believe the list of charges and heavy penalties are ‘unusual’ and ‘extreme’ for a startup, considering that the revelations started four years ago, the accused stepped down two years ago. and restitution has been made to the defrauded companies. Moreover, the business and the model was not far fetched or pie-in-sky–it was a reasonable model, according to report John Pletz. The company continues in business, albeit scaled down. Mr. Pletz believes that the outcome of Outcome Health will be far more due diligence on investors’ part (accentuated by the WeWork/Softbank crash in the same car) on startups. “Failure is expected–fraud is not.” The resolution of the charges will also be far in the future, perhaps years, due to this being an extraordinarily complicated case. There will be further hearings in January, but do expect it to drag on. A mini-surprise in his commentary was stating that the analysts may turn their plea to guilty.