A federal jury in the US has found two executives of a start-up based in Chicago, who are of Indian origin, guilty of running a corporate fraud scheme worth USD 1 billion. The scheme was aimed at defrauding the company’s clients, lenders, and investors.
The co-founder and former CEO of the health technology company Outcome Health, Rishi Shah, was found guilty on 19 of 22 counts, while the co-founder and former president, Shradha Agarwal, was found guilty on 15 of 17 counts, and the former COO, Brad Purdy, was found guilty on 13 of 15 counts.
The jury convicted the defendants of counts related to mail fraud, wire fraud, bank fraud, money laundering, and false statements to a financial institution. The company had installed television screens and tablets in doctors’ offices around the US and sold advertising space on those devices to clients, mainly pharmaceutical companies.
The defendants face a maximum sentence of 30 years in prison for each count of bank fraud and 20 years for each count of wire fraud and mail fraud. Shah faces a maximum sentence of 10 years in prison for each count of money laundering.
The sentencing hearing will be scheduled later. The evidence presented at the trial showed that the defendants sold advertising inventory the company did not have to Outcome’s clients and then under-delivered on its advertising campaigns.
Despite failing to deliver the full amount of advertising content as promised, the company still charged clients as if they had. The individuals named in the case, including Shah, Agarwal, and Purdy, were involved in a scheme to conceal the under-deliveries and make it seem like the company was meeting its contractual obligations.
They also inflated metrics to make it appear that patients were engaging more frequently with the company’s tablets in doctors’ offices.
This scheme began in 2011 and continued until 2017, resulting in at least USD 45 million of overbilled advertising services. The individuals involved were also found guilty of defrauding the company’s lenders and investors. By using false revenue figures in the company’s financial statements, they were able to secure millions of dollars in debt and equity financing.
Ultimately, the trio lied to both investors and lenders to cover up the company’s under-delivery of advertising campaigns for clients, leading to a significant overstatement of revenue in 2015 and 2016.
The debt financing of USD 110 million led to dividends of USD 30.2 million for Shah and USD 7.5 million for Agarwal, while the equity financing of USD 487.5 million resulted in dividends of USD 225 million for both Shah and Agarwal.
According to the Chicago Tribune, the verdict was a significant setback for the three individuals who were once prominent figures in Chicago’s tech industry. The case raises questions about the distinction between the normal challenges of startup growth and fraudulent activity, and it could have implications for others in the tech community.
A spokesperson for Shah expressed deep sadness about the verdict and pledged to pursue all legal options to overturn it. Purdy’s attorney Theodore Poulos expressed disappointment and emphasised the complexity of the case, highlighting evidence that he believes was deliberately withheld from Purdy. Agarwal’s lawyers declined to comment.
Three other former employees of Outcome pleaded guilty to charges related to the case, including wire fraud and conspiracy to commit wire fraud. These individuals, Ashik Desai, Kathryn Choi, and Oliver Han, will be sentenced at a later date.