Former Outcome Health execs convicted in $1B corporate fraud scheme
The execs sold advertising inventory the company didn't have, a jury found, then under-delivered on its advertising campaigns.
Photo: Blanchi Costela/Getty Images
A federal jury has convicted three former executives of Outcome Health, a Chicago-based health technology start-up company, for their roles in an alleged fraud scheme that targeted the company's clients, lenders and investors and involved roughly $1 billion in fraudulent financial gain, according to the U.S. Department of Justice.
The former execs convicted by jury verdict on Tuesday were Rishi Shah, co-founder and former CEO of Outcome Health; former Outcome president and cofounder Shradha Agarwal; and former chief operating officer and chief financial officer Brad Purdy.
The crux of the case is that Outcome installed television screens and tablets in doctors' offices around the U.S.and then sold advertising space on those devices to clients, most of whom were pharmaceutical companies. According to evidence presented at trial, Shah, Agarwal and Purdy sold advertising inventory the company did not have to Outcome's clients, then under-delivered on its advertising campaigns.
Despite these under-deliveries, the company still invoiced its clients as if it had delivered in full. The three executives allegedly lied or caused others to lie to conceal the under-deliveries from clients, and make it appear as if the company was delivering advertising content to the number of screens in the clients' contracts. Purdy and others at Outcome also inflated metrics that purported to show how frequently patients engaged with Outcome's tablets installed in doctors' offices.
WHAT'S THE IMPACT
According to the trial evidence, the scheme targeting Outcome's clients began in 2011, lasted until 2017, and resulted in at least $45 million of overbilled advertising services.
The trio were also convicted of defrauding Outcome's lenders and investors. The under-delivery to advertising clients resulted in a significant overstatement of the company's revenue for 2015 and 2016.
The company's outside auditor signed off on the 2015 and 2016 revenue numbers because Purdy apparently caused others to fabricate data to conceal the under-deliveries from the auditor. Shah, Agarwal and Purdy then used the inflated revenue figures in Outcome's 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.
According to the DOJ, the execs lied to investors and lenders to conceal their ongoing under-delivery of advertising campaigns for clients. Shah and Purdy also misrepresented to investors the efficacy of Outcome's advertising campaigns by concealing the fact that it had failed to meet return-on-investment commitments to clients.
The $110 million debt financing resulted in a $30.2 million dividend to Shah and a $7.5 million dividend to Agarwal; the $487.5 million in equity financing resulted in a $225 million dividend to Shah and Agarwal.
THE LARGER TREND
Three other former employees of Outcome pleaded guilty prior to trial. Ashik Desai, the former chief growth officer, pleaded guilty to one count of wire fraud; Kathryn Choi, a former senior analyst, and Oliver Han, a former analyst, both pleaded guilty to conspiracy to commit wire fraud. Desai, Choi and Han will be sentenced at a future date.
Shah was convicted of five counts of mail fraud, 10 counts of wire fraud, two counts of bank fraud and two counts of money laundering. Agarwal was convicted of five counts of mail fraud, eight counts of wire fraud and two counts of bank fraud. Purdy was convicted on five counts of mail fraud, five counts of wire fraud, two counts of bank fraud and one count of false statements to a financial institution.
The defendants face a maximum penalty of 30 years in prison for each count of bank fraud and 20 years in prison for each count of wire fraud and mail fraud. Purdy faces a maximum penalty of 30 years in prison for the count of false statements to a financial institution. Shah faces a maximum penalty of 10 years in prison for each count of money laundering.
Sentencing will be scheduled at a future date.
Twitter: @JELagasse
Email the writer: Jeff.Lagasse@himssmedia.com
