Outcome Health Returns Fire in Investors Dispute -- WSJ

By Rolfe Winkler Features Dow Jones Newswires

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (November 9, 2017).

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Outcome Health on Wednesday fired back at investors suing the prominent Chicago advertising startup, saying that their accusations of fraud are baseless and that their effort to freeze $225 million in funds controlled by the founders was unfair and could financially damage the company.

On Tuesday, investors sued Outcome and its founders, Rishi Shah and Shradha Agarwal, claiming the founders knowingly provided false data and financial reports before a funding round earlier this year. The investors, which include funds managed by a unit of Goldman Sachs Group Inc. and Google parent Alphabet Inc., invested $487.5 million beginning in March.

The investors say they are entitled to get their money back, citing an October Wall Street Journal article that reported how some Outcome employees had allegedly misled customers about its advertising services. Outcome, which said it was valued at $5.5 billion by investors, puts video screens in doctors' offices and streams pharmaceutical ads to them.

In New York Supreme Court in New York County on Wednesday, the judge said she would review both sides' claims and plans to hear further arguments on Monday.

Outcome and its founders denied wrongdoing in Wednesday's filing and said there is no evidence that Mr. Shah or Ms. Agarwal engaged in any misconduct.

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Outcome's attorney, Michael Carlinsky of law firm Quinn Emanuel Urquhart & Sullivan LLP, called investors "irresponsible" for filing suit days after they were briefed by an independent counsel hired by Outcome last month to investigate the claims that some employees misled advertising customers.

According to Outcome's legal filing, the independent counsel, former U.S. attorney Dan Webb, told investors during the briefing that while his investigation remains ongoing, he had "'not come across any evidence that senior management was involved' in any misconduct or even possesses 'relevant information' regarding the misconduct that may have occurred at Outcome Health."

In response to Wednesday's comments from Outcome, a Goldman Sachs spokesman said, "We believe there is more than enough evidence to support our case and we look forward to our chance to present it to the court." A spokesman for Alphabet's CapitalG didn't immediately respond to requests for comment.

Outcome's filing says Mr. Webb interviewed "approximately 17 Outcome Health employees" as part of his investigation. It does not state whether he interviewed any former employees, including Sameer Kazi, a former chief operating officer who the Journal reported in October confronted Mr. Shah with concerns about business practices earlier this year, people briefed on the discussion said.

Mr. Webb and Mr. Kazi didn't respond to requests for comment on Wednesday. Mr. Kazi in a brief phone conversation this summer said he was at the company "two weeks and three days" early this year and declined to comment on his departure.

The investors have asked the court to freeze $225 million of the total that had been placed in a separate account to pay the founders a distribution. They allege Mr. Shah took steps to take money out of the account and can't verify the total funds are there.

The Outcome filing states that while the founders have the right to take this money out per an agreement with investors, the funds remain in the account for company use. "We have been completely transparent with employees, customers and investors, and always operated with complete integrity," the founders said in a statement.

Outcome's legal filing says Mr. Shah and Ms. Agarwal "have considered" injecting the money allocated for their distribution back into Outcome. "Such an infusion of cash could avoid a potential debt default and give the company breathing room to regain its footing amid the recent turmoil, " the filing said.

Mr. Carlinsky, Outcome's attorney, added in an interview that this was a "general" statement about a debt default. "We don't want to give the lenders reason to seek to declare a potential default" and that an infusion of cash back into the company would mollify them.

A lawyer representing Outcome's creditors, Michael Stamer of Akin Gump, didn't respond to a request for comment.

Write to Rolfe Winkler at rolfe.winkler@wsj.com

(END) Dow Jones Newswires

November 09, 2017 02:47 ET (07:47 GMT)