A federal jury has convicted three former Outcome Health executives for their role in a $1 billion corporate fraud scheme.
The Chicago-based health technology startup installed tablets and digital screens in doctor’s offices and sold advertising space on those screens to pharmaceutical companies. But a 10-week federal trial found Outcome’s executives sold advertising inventory they did not have, inflated metrics and underdelivered on advertising campaigns.
“Despite these under-deliveries, the company still invoiced its clients as if it had delivered in full,” according to a statement Tuesday from the Department of Justice.
The scheme targeting Outcome’s clients allegedly lasted from 2011 to 2017 and resulted in at least $45 million of overbilled advertising services, according to trial evidence. The fraud originally was revealed in a Wall Street Journal article in 2017.
Rishi Shah, others found guilty
The three executives convicted by the jury this week are:
Rishi Shah, co-founder and former CEO, who was convicted of five counts of mail fraud, 10 counts of wire fraud, two counts of bank fraud and two counts of money laundering.
Shradha Agarwal, former president, who was convicted of five counts of mail fraud, eight counts of wire fraud and two counts of bank fraud.
Brad Purdy, former chief operating officer and chief financial officer, who 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 three have yet to be sentenced but could face years in prison.
Three other former Outcome employees pleaded guilty before the trial:
Ashik Desai, former chief growth officer, pleaded guilty to one count of wire fraud.
Kathryn Choi, a former senior analyst, pleaded guilty to conspiracy to commit wire fraud.
Oliver Han, a former analyst, pleaded guilty to conspiracy to commit wire fraud.
Shah, Agarwal, Purdy and Desai also were charged with fraud in 2019 by the Securities and Exchange Commission.
Overstating company revenue
The three executives also were found guilty of defrauding Outcome’s lenders and investors by overstating company revenue in 2015 and 2016.
The Justice Department says Purdy caused others to “fabricate data to conceal the under-deliveries from the auditor.” Outcome went on to use the inflated revenue figures to raise $475 million through two rounds of debt financing in 2016 and $487.5 million in equity financing in 2017.
By then, the company – formerly called ContextMedia – was valued at more than $5 billion with more than 500 employees, compared with just 16 in 2011.
One round of debt financing resulted in a $30.2 million dividend to Shah and a $7.5 million dividend to Agarwal, while the equity financing resulted in a $225 million dividend to Shah and Agarwal.
Defendant attorney ‘profoundly disappointed’
Defense attorneys argued that the blame should fall on another former official, Desai, who pleaded guilty to wire fraud and testified against the three former executives.
A spokesman for Shah said Tuesday that he plans to appeal and “will exhaust every avenue to overturn this result.”
Lawyers for Agarwal said they will be reviewing the verdict and trial record and “will be considering all options moving forward.”
An attorney for Purdy, Theodore Poulos, said they are “profoundly disappointed” with the verdict and reiterated his defense argument from trial that evidence showed “certain critical information was withheld” from Purdy.
Contributing: The Associated Press
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This article originally appeared on USA TODAY: Outcome Health executives found guilty of corporate fraud scheme
Source: https://finance.yahoo.com/news/former-outcome-health-executives-found-192335575.html