Three former C-suite executives at a health tech startup have been sentenced after fraudulently obtaining an estimated $1bn from investors and lenders.
Rishi Shah, 38, is a co-founder and former CEO of Outcome Health, a Chicago-based firm founded in 2006 and known as Context Media prior to January 2017. He was sentenced to seven years and six months in prison, while former company president, Shradha Agarwal, 38, was sentenced to three years in a half-way house.
Brad Purdy, 35, the company’s former COO and CFO, was sentenced to two years and three months in prison.
Outcome Health provided TVs and tablets for use in doctors’ waiting rooms and sold ads running on those devices to mainly pharmaceuticals clients, according to the Department of Justice (DoJ). However, the firm sold ad inventory it didn’t have and inflated metrics showing how many patients interacted with the content while waiting in clinics.
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Running from 2011-2017, the ad fraud scheme resulted in at least $45m of overbilled advertising services, the DoJ claimed.
This in turn artificially inflated the firm’s revenue figures in 2015 and 2016, enabling Shah, Agarwal and Purdy to raise $110m in debt financing in April 2016, a further $375m in December 2016 and $487.5m in equity financing in early 2017.
According to the DoJ, the $110m financing resulted in a $30m dividend for Shah and a $7.5m dividend for Agarwal, while the $487.5m in equity financing resulted in a $225m dividend benefiting the two.
“Outcome’s former executives deceived their clients, their auditor, their lenders, and their investors for years,” said principal deputy assistant attorney general Nicole Argentieri, head of the Justice Department’s Criminal Division.
“Their sentences should serve as yet another reminder that ‘faking it until you make it’ is not an acceptable practice for any business, whether that company is a technology start-up or a well-established corporation. Lying about your revenue to obtain customers or financing is fraud, plain and simple.”
A federal jury convicted the trio in April 2023. Shah was convicted of five counts of mail fraud, 10 counts of wire fraud, two counts of bank fraud and two counts of money laundering. Agarwal was convicted of five counts of mail fraud, eight counts of wire fraud and two counts of bank fraud. Purdy was convicted of five counts of mail fraud, five counts of wire fraud, two counts of bank fraud and one count of false statements to a financial institution.
Investment fraud was the highest grossing cybercrime category last year, with scammers amassing more than $4.5bn, according to the FBI.