Four former executives of Chicago-based Outcome Health were accused by federal authorities Monday of falsifying the company’s financial performance to raise nearly $1 billion in debt and private equity.
The former executives were CEO Rishi Shah, President Shradha Agarwal, CFO Brad Purdy and Executive Vice President Ashik Desai. Shah, 33, and Agarwal, 34, co-founded the health care advertising company and owned it in 2015 and 2016, when the alleged fraud occurred.
They were accused of 26 counts of fraud in a criminal indictment unsealed Monday in U.S. District Court. Separately, the federal Securities and Exchange Commission added Shah, Agarwal and Purdy, 30, to a complaint it filed against Desai last week that sought restitution and other penalties.
Outcome Health places screens in doctors’ offices and sells advertising on them to pharmaceutical firms. Federal officials said the defendants inflated audited financial statements by at least $44.3 million to help get the $487 million from private investors and that about half the money raised went to Shah and Agarwal.
Prosecutors also said the pair profited from a $485 million debt deal they arranged in 2016. They said Shah received a dividend of $30.2 million and Agarwal $7.5 million as a result of the financing.
Shah’s attorney, William Burck, said his client “is being scapegoated for the wrongdoing of others who have cut deals with the government to reduce their own exposure. Mr. Shah will plead not guilty to these charges because he is, in fact, not guilty of any of them. He looks forward to his day in court and the opportunity to clear his name.”
An attorney for Agarwal released a statement asserting her innocence. “Ms. Agarwal denies the allegations made by the SEC and is focused on exonerating herself in court. To be clear, Shradha never committed fraud and never participated in any conspiracy. To the contrary, Shradha was committed to transparency and integrity at Outcome Health. She will fight to protect her good name in court,” McGuireWoods partner Christina Egan said.
“Outcome’s former executives and employees allegedly deceived lenders, investors, and their own auditors by falsely representing revenue for additional profit,” said Principal Deputy Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division.
”Today’s action seeks to hold Outcome Health’s most senior executives accountable for an alleged massive fraud,” said Steven Peikin, co-director of the SEC’s Division of Enforcement. “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.”
Other defendants and Outcome Health could not immediately be reached.
Previously charged in a criminal information were former Outcome Health employees Kathryn Choi, a senior analyst, and analyst Oliver Han, both 29. A criminal information filing can be used when defendants are expected to plead guilty.
Desai, 26, was scheduled to be arraigned Dec. 3 and Choi and Han were due to be arraigned Dec. 5, the U.S. Attorney’s Office said. It said court appearances for other defendants had yet to be set.
Shah and Agarwal founded the company while students at Northwestern University in 2006. In a settlement with investors, both gave up their staff positions in January 2018. Later that year, they also relinquished their ownership stakes and board seats after allegedly refusing to cooperate with an internal probe.
In 2017, Shah tried to bolt in a Cadillac Escalade when a private eye served him court papers in a fraud lawsuit. The detective placed the papers on the vehicle’s roof and told the driver that the documents has been delivered, taking a photo for good measure.
On Oct. 30, Outcome Health admitted in resolution documents filed with the Justice Department that its former executives engaged in fraud by selling advertising inventory it never had. The company agreed to pay $70 million to investors. The settlement resolved claims against the company but allowed for charges against the former executives.
At that time, current CEO Matt McNally said, “Over the past two years, Outcome Health has focused on doing right by our customers. In short, we are a completely new company.”
He said the agreement certified the company has “new management, new owners, and new controls in place. We are excited to turn the page from this inquiry and focus on providing valuable content to physicians’ offices everywhere.”