In a significant legal development, three former executives of Outcome Health, a Chicago-based health technology start-up, have been sentenced for their roles in a massive fraud scheme that defrauded clients, lenders, and investors out of approximately $1 billion. This blog post provides an in-depth look at the case, the charges, and the implications of this verdict.

Background of the Case

Outcome Health, previously known as Context Media until January 2017, was founded in 2006. The company installed television screens and tablets in doctors’ offices across the United States, selling advertising space on these devices to clients, primarily pharmaceutical companies. The fraud scheme involved selling advertising inventory the company did not have and then under-delivering on these advertising campaigns, while still invoicing clients as if the campaigns were delivered in full.

The Defendants and Sentences

1. Rishi Shah, 38, Co-founder and former CEO of Outcome, was sentenced on June 26 to seven years and six months in prison.
2. Shradha Agarwal, 38, Co-founder and former President of Outcome, was sentenced to three years in a halfway house.
3. Brad Purdy, 35, Former Chief Operating Officer and Chief Financial Officer of Outcome, was sentenced to two years and three months in prison.

Details of the Fraud Scheme

The fraud scheme operated from 2011 to 2017 and resulted in at least $45 million in overbilled advertising services. Shah, Agarwal, and Purdy concealed under-deliveries from clients by falsifying data and lying about the company’s advertising reach and engagement metrics. This deception extended to Outcome’s lenders and investors, leading to a material overstatement of the company’s revenue for 2015 and 2016.

To secure financing, the inflated revenue figures were used in audited financial statements. This resulted in significant debt and equity financing:

• $110 million in debt financing in April 2016.
• $375 million in debt financing in December 2016.
• $487.5 million in equity financing in early 2017.

The financing led to substantial dividends for Shah and Agarwal, with Shah receiving $30.2 million and Agarwal $7.5 million from the debt financing, and a $225 million dividend from the equity financing.

Statements from Authorities

Principal Deputy Assistant Attorney General Nicole M. Argentieri emphasized that “faking it until you make it” is unacceptable and constitutes fraud. Acting U.S. Attorney Morris Pasqual for the Northern District of Illinois highlighted the extensive nature of the fraud and the importance of holding the defendants accountable. Executive Assistant Director Timothy Langan of the FBI and Assistant Inspector General for Investigations Shimon R. Richmond of the FDIC-OIG underscored the commitment of law enforcement agencies to investigate and prosecute such fraudulent activities.

Convictions and Sentences

The federal jury convicted Shah, Agarwal, and Purdy in April 2023 on multiple counts of fraud. Specifically:

• Shah: Five counts of mail fraud, 10 counts of wire fraud, two counts of bank fraud, and two counts of money laundering.
• Agarwal: Five counts of mail fraud, eight counts of wire fraud, and two counts of bank fraud.
• Purdy: Five counts of mail fraud, five counts of wire fraud, two counts of bank fraud, and one count of making false statements to a financial institution.

Three other former Outcome employees—Ashik Desai, Kathryn Choi, and Oliver Han—pleaded guilty prior to the trial and are awaiting sentencing later this year.

Implications for the Corporate World

This case serves as a stark reminder of the severe consequences of fraudulent activities within corporate structures. It highlights the importance of transparency, ethical conduct, and rigorous compliance programs to prevent similar fraudulent schemes.

Conclusion

The sentencing of Outcome Health’s former executives marks a significant victory for justice and underscores the importance of integrity in business practices. As the legal landscape continues to evolve, it is crucial for companies and their executives to adhere strictly to ethical standards and regulatory requirements to maintain trust and avoid severe legal repercussions.