A US court has sentenced an Indian-American businessman to seven and a half years in prison for a fraud scheme that targeted high-profile clients, lenders, and investors and involved a whopping sum of $1 billion in fraudulently obtained funds.
Rishi Shah, 38, was among the three former executives of Outcome Health (Outcome), a Chicago-based health technology start-up company, who were sentenced for their roles in the fraud. Shah was sentenced on June 26 to seven years and six months in prison, according to the US Justice Department.
Shradha Agarwal, 38, a co-founder and former president of Outcome, was also sentenced to three years in a halfway house. Brad Purdy, 35, the former chief operating officer and chief financial officer of Outcome, received two years and three months in prison.
‘Faking it until you make it’
“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,” said US Principal Deputy Assistant Attorney General Nicole M. Argentieri, head of the Justice Department’s Criminal Division.
According to court documents and evidence presented at trial, Outcome, which was founded in 2006 and known as Context Media prior to January 2017, installed television screens and tablets in doctors’ offices across the United States and then sold advertising space on those devices to clients, most of which were pharmaceutical companies.
Shah, Agarwal, and Purdy sold advertising inventory the company did not have to Outcome’s clients and then under-delivered on its advertising campaigns. Despite these under-deliveries, the company still invoiced its clients as if it had delivered in full. Shah, Agarwal, and Purdy lied or caused others to lie to conceal the under-deliveries from clients and make it appear as if the company was delivering advertising content to the number of screens in the clients’ contracts. Purdy and others at Outcome also inflated metrics that purported to show how frequently patients engaged with Outcome’s tablets installed in doctors’ offices.
According to the trial evidence, the scheme targeting Outcome’s clients began in 2011 and lasted until 2017, and resulted in at least $45 million of overbilled advertising services. “This was an elaborate, billion-dollar fraud scheme by three people who were supposed to be leaders of the company,” said Executive Assistant Director Timothy Langan of the FBI’s Criminal, Cyber, Response, and Services Branch.
‘Defraud the American public’
“Instead, these now former executives attempted to illegally line their own pockets. This type of fraud and abuse takes critical resources out of our health care system, and the FBI will always work with our law enforcement partners to investigate and prosecute anyone who intends to defraud the American public.” Shah, Agarwal, and Purdy also defrauded Outcome’s lenders and investors. The under-delivery to Outcome’s advertising clients resulted in a material overstatement of Outcome’s revenue for the years 2015 and 2016.
The company’s outside auditor signed off on the 2015 and 2016 revenue numbers because Purdy caused others to fabricate data to conceal the under-deliveries from the auditor. Shah, Agarwal, and Purdy then used the inflated revenue figures in Outcome’s 2015 and 2016 audited financial statements to raise $110 million in debt financing in April 2016, $375 million in debt financing in December 2016, and $487.5 million in equity financing in early 2017.
1 billion Dollars
The $110 million debt financing resulted in a $30.2 million dividend to Shah and a $7.5 million dividend to Agarwal, and the $487.5 million in equity financing resulted in a $225 million dividend that benefited Shah and Agarwal. “The defendants in this case have been brought to justice for their actions in deceiving Outcome Health’s clients and fraudulently obtaining approximately $1 billion from its lenders and investors,” said Assistant Inspector General for Investigations Shimon R. Richmond of the Federal Deposit Insurance Corporation Office of Inspector General.
A federal jury convicted Shah, Agarwal, and Purdy 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. Three other former Outcome employees pleaded guilty prior to trial.
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