Ex-Execs at Outcome Health Charged in $1B Fraud Scheme

The co-founders of the start-up allegedly enriched themselves by fraudulently inflating revenues and the extent and effect of their advertising.

Four former executives at Outcome Health have been charged with fraud in an alleged $1 billion scheme that cooked the books on revenues and lied to investors and clients about the reach of its advertising inventory, the Department of Justice said.

An indictment alleging wire fraud, bank fraud, mail fraud, and related charges was unsealed this week in a federal court in Chicago against:

• Rishi Shah, 33, of Chicago, the co-founder and CEO of Outcome Health, known as ContextMedia before January 2017;
   
• Shradha Agarwal, 34, of Chicago, co-founder and president of Outcome Health;
   
• Brad Purdy, 30, of San Francisco, COO/CFO; and
   
• Ashik Desai, 26, of Philadelphia, executive vice president of business operations and chief growth officer.

Also indicted were Kathryn Choi, 29, of New York, and Oliver Han, 29, of Chicago, both former analysists at the company.

The indictment alleges that, from 2011 to 2017, the alleged schemers at privately held Outcome – which provides physician waiting rooms with video screens featuring health tips and drug ads – sold tens of millions of dollars of advertising inventory that did not exist, mostly to drug companies. Despite these under-deliveries, Outcome allegedly still billed clients as if it had delivered in full. 

Using the claims of the bogus inventory, the scheme allegedly inflated financial statements that the former executives used to raise nearly $1 billion in debt and equity financing in 2016 and 2017.

To conceal the alleged fraud, the indictment claims that the former executives and employees allegedly falsified affidavits and proofs of performance to make it appear the company was delivering advertising content to the number of screens in its clients' contracts.

The scheme also allegedly inflated patient engagement metrics regarding how frequently patients engaged with Outcome’s tablets, and altered studies presented to clients to make it appear that the campaigns were more effective than they were.

The company's outside auditor signed off on the 2015 and 2016 revenue numbers because Purdy, Desai, Choi and Han allegedly fabricated data to conceal the under-deliveries, the indictment says. 

The former executives allegedly used the inflated revenue figures 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.

The $110 million debt financing allegedly resulted in a $30.2 million dividend to Shah and a $7.5 million dividend to Agarwal. The $487.5 million equity financing allegedly resulted in a $225 million dividend to Shah and Agarwal.

Shah and Shradha resigned in 2018 after Outcome reached a fraud settlement with investors. In October, the company agreed to pay $70 million to the federal government to resolve fraud allegations.