Three former executives of Outcome Health, a health technology start-up, have been convicted in a $1 billion corporate fraud scheme. Rishi Shah, the co-founder and former CEO, Shradha Agarwal, the former president, and Brad Purdy, the former COO and CFO, were found guilty by a federal jury for their roles in a fraud scheme that targeted the company’s clients, lenders, and investors. The scheme involved selling advertising inventory that the company did not have and under-delivering on advertising campaigns, while still invoicing clients as if the campaigns were fulfilled. The convicted executives also fabricated data and inflated metrics to mislead investors and lenders. This article discusses the details of the conviction and the consequences these individuals may face.
Former Executives of Outcome Health Convicted in $1B Corporate Fraud Scheme
The former executives of Outcome Health, a Chicago-based health technology start-up company, have been convicted in a corporate fraud scheme that involved approximately $1 billion in fraudulently obtained funds. The scheme targeted Outcome Health’s clients, lenders, and investors, resulting in significant financial losses. The individuals convicted in this case are Rishi Shah, the co-founder and former CEO of Outcome Health, Shradha Agarwal, the former president, and Brad Purdy, the former COO and CFO.
Overview of the Fraud Scheme
Outcome Health installed television screens and tablets in doctors’ offices across the United States and then sold advertising space on those devices to clients, primarily pharmaceutical companies. However, evidence presented at trial revealed that the executives sold advertising inventory the company did not have and under-delivered on advertising campaigns. Despite these under-deliveries, the company still invoiced its clients as if it had delivered in full. The executives engaged in lies and deception to conceal these under-deliveries from clients and make it appear as if the company was fulfilling its advertising content obligations.
The fraud scheme began in 2011 and continued until 2017, resulting in at least $45 million of overbilled advertising services. Additionally, the executives manipulated revenue numbers to create a material overstatement of Outcome Health’s revenue for the years 2015 and 2016. The company’s outside auditor signed off on these inflated numbers because the executives fabricated data to hide the under-deliveries. The executives then used these inflated revenue figures to secure significant amounts of debt and equity financing.
Rishi Shah, Shradha Agarwal, and Brad Purdy were the key executives involved in the fraud scheme. Rishi Shah co-founded Outcome Health in 2006 and served as the CEO until his resignation. Shradha Agarwal was the former president of the company and was described as a co-founder. Brad Purdy held the positions of COO and CFO. Each of these individuals played a significant role in orchestrating and executing the fraudulent activities.
The executives were convicted on multiple counts, including mail fraud, wire fraud, bank fraud, money laundering, and false statements to a financial institution. These convictions carry substantial penalties, including up to 30 years in prison for each count of bank fraud and 20 years in prison for each count of wire fraud and mail fraud.
Targeting Outcome Health’s Clients
Outcome Health primarily targeted pharmaceutical companies as its clients for advertising campaigns. The company installed television screens and tablets in doctors’ offices, creating an opportunity to sell advertising space to these clients. However, evidence presented at trial showed that Outcome Health under-delivered on these advertising campaigns, resulting in significant financial losses for the pharmaceutical companies.
The executives engaged in lies and deception to conceal the under-deliveries from clients. They made false representations about the number of screens on which the advertising content was displayed and invoiced clients as if they had delivered the full advertising campaigns. This deceitful behavior had a detrimental impact on Outcome Health’s clients, who had paid for advertising services that were not fulfilled as promised.
Overbilling of Advertising Services
As part of the fraudulent scheme, Outcome Health overbilled its clients for advertising services. The evidence presented at trial revealed that at least $45 million of advertising services were overbilled to clients. The executives manipulated revenue numbers to create a false representation of the company’s financial performance.
The inflated revenue numbers were approved by the company’s outside auditor, who was deceived by fabricated data that concealed the under-deliveries. With these inflated revenue figures, Outcome Health was able to obtain significant amounts of debt and equity financing from lenders and investors.
Misrepresentation of Revenue Numbers
The executives engaged in the fabrication of data to misrepresent the company’s revenue numbers. They concealed the under-delivery of advertising campaigns from the company’s outside auditor, who unknowingly signed off on the inflated revenue figures. These inflated revenue numbers were then used in Outcome Health’s audited financial statements.
The misrepresentation of revenue numbers had significant implications for the company’s debt and equity financing. By presenting false revenue figures, the executives were able to secure substantial amounts of financing from lenders and investors, contributing to the overall success and valuation of Outcome Health.
Defrauding Outcome Health’s Lenders and Investors
In addition to defrauding the company’s clients, the executives also defrauded Outcome Health’s lenders and investors. They made false representations to investors, concealing the fact that the company had failed to meet return-on-investment commitments to clients. This misrepresentation led to investors investing significant amounts of money into the company based on false information.
As a result of the fraudulent activities, the executives received substantial dividends. These dividends were paid out using funds obtained through deceptive practices. The executives benefited financially from their involvement in the fraud scheme, further highlighting their intent to deceive and defraud Outcome Health’s stakeholders.
Dividends Received by Executives
As part of the fraudulent scheme, the executives received substantial dividends. Rishi Shah and Shradha Agarwal received dividends of $30.2 million and $7.5 million, respectively, as a result of a $110 million debt financing. They also received dividends of $225 million each from $487.5 million in equity financing. These dividends were paid out using funds that were fraudulently obtained from lenders and investors.
The dividends received by the executives demonstrated their personal gain from the fraudulent activities. This further solidified their guilt and involvement in the corporate fraud scheme.
Guilty Pleas of Former Employees
In addition to the convictions of the executives, three former employees of Outcome Health pleaded guilty to their involvement in the fraud scheme. Ashik Desai, the former chief growth officer, pleaded guilty to wire fraud. Kathryn Choi, a former senior analyst, and Oliver Han, a former analyst, pleaded guilty to conspiracy to commit wire fraud. The guilty pleas of these former employees further corroborated the evidence against the executives and highlighted the extent of the fraudulent activities within the company.
The sentencing of these former employees is yet to be determined and will be scheduled at a later date. Their guilty pleas will contribute to the overall sentencing and punishment of those involved in the fraud scheme.
Investigation and Prosecution
The investigation into Outcome Health’s corporate fraud scheme involved the Federal Bureau of Investigation (FBI) and the Federal Deposit Insurance Corporation-Office of Inspector General (FDIC-OIG). These agencies played a crucial role in uncovering the fraudulent activities and building a strong case against the executives.
Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division, U.S. Attorney Morris Pasqual for the Northern District of Illinois, and Assistant Inspector General for Investigations Shimon Richmond of the FDIC-OIG led the prosecution of the case. The prosecution team included Assistant Chiefs from the Criminal Division’s Fraud Section and Assistant U.S. Attorneys from the Northern District of Illinois.
The sentencing of the convicted executives will be determined by a federal district court judge. The judge will consider the U.S. Sentencing Guidelines and other statutory factors when determining the appropriate punishment for the crimes committed.
The convictions of the former executives of Outcome Health highlight the importance of holding individuals accountable for corporate fraud schemes. The significant financial losses incurred by the company’s clients, lenders, and investors serve as a reminder of the devastating impact of such fraudulent activities. The successful investigation and prosecution of this case demonstrate the commitment of law enforcement agencies to combat corporate fraud and protect the integrity of the financial system.
Overall, the Outcome Health corporate fraud scheme serves as a cautionary tale for businesses and investors, emphasizing the importance of due diligence, transparency, and ethical practices in the corporate world.