Feds hit health-tech founders with billion-dollar fraud charge

A health care information company, backed by Google parent company Alphabet and Wall Street investment house Goldman Sachs, finds itself in the middle of a federal investigation for fraud.

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Four former employees of Outcome Health were indicted in Chicago federal court Monday for operating a fraud scheme “that targeted the company’s clients, lenders and investors, and involved approximately $1 billion in fraudulently obtained funds,” according to the U.S. Attorney’s Office for the Northern District of Illinois.

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Outcome -- which on its website proclaims, “We are in the business of health. We have to be trusted.” -- operates digital screens in physicians’ offices with an aim of educating patients and selling ads. Charged with mail, wire and bank fraud include former CEO Rishi Shah, 33, and former president Shradha Agarwal, 34, both of Chicago. The two co-founded Outcome Health in 2006 when they were Northwestern University students.

Shah's attorney, William Burck, said his client "is being scapegoated for the wrongdoing of others." Agarwal's lawyer, Christina M. Egan, said her client will "fight to protect her good name."

Last month, Outcome Health under present CEO Matt McNally entered a non-prosecution agreement with the Department of Justice as a result of “cooperation and remediation efforts” with the Department of Justice.

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“Over the past two years, Outcome Health implemented a comprehensive overhaul of our compliance and campaign-reporting policies,” McNally said in a statement on its website. “These actions included engaging third-party auditors to ensure reporting accuracy, investing in partnerships with organizations like BPA Worldwide to validate key performance indicators, overhauling internal controls to improve the reliability of reporting, and forming an all-new leadership team, myself included.”

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The scheme allegedly began in 2011 and ran for six years where the executives lied to clients and inflated engagement metrics, which led to revenue inflation on Outcome’s financial statements. The company then used those inflated statements to obtain a $110 million loan in April 2016, a $375 million loan in December 2016 and the $487.5 million in financing in 2017. The $110 loan, according to the U.S. Attorney, 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 payout to Shah and Agarwal.

“These charges demonstrate that the FBI and its partners will hold businesses accountable for their misconduct,” said Deputy Special Agent in Charge Larry L. Lapp of the FBI’s Chicago Field Office.

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The Associated Press contributed to this story