Three Former Executives Sentenced for $1 Billion Corporate Fraud Scheme in Outcome Health
In a landmark ruling on corporate fraud, three former executives of Outcome Health, a health technology start-up based in Chicago, have been sentenced for their involvement in a sprawling fraud scheme amounting to approximately $1 billion. This scheme targeted Outcome’s clients, lenders, and investors and spanned multiple years, ultimately leading to the downfall of what had been a promising health tech company.
Rishi Shah, 38, a co-founder and former CEO of Outcome Health, received a sentence of seven years and six months in prison on June 26, 2023. Shradha Agarwal, 38, the co-founder and former president, was sentenced to three years in a halfway house. Brad Purdy, 35, who served as both the chief operating officer and chief financial officer, received a sentence of two years and three months in prison.
The sentencing comes after a detailed investigation into the company’s operations, revealing extensive fraudulent activities meant to deceive clients, auditors, lenders, and investors over several years. According to Principal Deputy Assistant Attorney General Nicole M. Argentieri of the Department of Justice’s Criminal Division, “Outcome’s former executives deceived their clients, their auditor, their lenders, and their investors for years. Their sentences should serve as yet another reminder that ‘faking it until you make it’ is not an acceptable practice for any business.”
The Fraudulent Practices Unveiled
Outcome Health, originally founded in 2006 and operating as Context Media until it rebranded in 2017, installed television screens and tablets in doctors’ offices across the United States. These devices were then used to display advertisements from clients, primarily pharmaceutical companies. The trial revealed that Shah, Agarwal, and Purdy systematically sold advertising inventory that did not exist to their clients, and they continued invoicing these clients as though the ads had been successfully delivered. In reality, the advertising campaigns fell short, leading to significant under-deliveries.
To conceal the discrepancies, the executives and other employees lied to clients about the actual reach and delivery of their advertising campaigns. Evidence presented at the trial showed that they fabricated metrics showing inflated engagement rates for their devices, falsely representing the number of patient interactions with Outcome’s tablets. This deception lasted from 2011 to 2017, ultimately leading to approximately $45 million in overbilled services to their clients.
Acting U.S. Attorney Morris Pasqual for the Northern District of Illinois emphasized that “although they sought to hide the fraud by silencing whistleblowers and duping auditors, a jury rightly held the defendants accountable for their extensive fraud scheme.” This case highlights the Justice Department’s commitment to seeking justice for victims of fraud.
Impact on Lenders and Investors
In addition to defrauding clients, the executives’ misrepresentation of Outcome’s financial standing led to significant losses for lenders and investors. By inflating revenue for the fiscal years 2015 and 2016, the company convinced its outside auditor to certify inflated financial statements, which were then used to secure substantial debt and equity financing. In April 2016, Outcome secured $110 million in debt financing, and an additional $375 million was raised in December 2016. Outcome’s final major financing round in early 2017 involved a staggering $487.5 million in equity.
These financial misrepresentations brought substantial dividends to the executives, with Shah and Agarwal receiving multimillion-dollar payouts. Shah was awarded $30.2 million from the April 2016 debt financing and an additional $225 million from the 2017 equity financing. Agarwal received $7.5 million from the 2016 round and also benefited from the later equity financing.
Executive Assistant Director Timothy Langan of the FBI’s Criminal, Cyber, Response, and Services Branch emphasized the seriousness of the case, noting, “This was an elaborate, billion-dollar fraud scheme by three people who were supposed to be leaders of the company. Instead, these now former executives attempted to illegally line their own pockets.”
The Legal Consequences
Following the conclusion of the trial, Shah, Agarwal, and Purdy were convicted of multiple charges. Shah faced five counts of mail fraud, 10 counts of wire fraud, two counts of bank fraud, and two counts of money laundering. Agarwal was found guilty 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 making false statements to a financial institution.
Several other Outcome employees also faced legal consequences. Ashik Desai, the former chief growth officer, pleaded guilty to one count of wire fraud, while former analysts Kathryn Choi and Oliver Han pleaded guilty to conspiracy to commit wire fraud. Their sentencing dates are scheduled for later in the year.
Repercussions for Corporate America
This case serves as a stark reminder of the consequences of unethical business practices. Assistant Inspector General for Investigations Shimon R. Richmond of the FDIC Office of Inspector General remarked, “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.” The FDIC-OIG and the FBI were critical in the investigation, working in collaboration with the U.S. Securities and Exchange Commission.
The sentences handed down reflect the serious nature of the fraud, with federal authorities underscoring that companies cannot use deceptive practices to falsely inflate revenue and gain financial support. “Lying about your revenue to obtain customers or financing is fraud, plain and simple,” said Argentieri, highlighting the Justice Department’s stance on holding corporate executives accountable.
Broader Implications for Start-Ups
Outcome Health’s fraudulent practices also cast a shadow on start-up culture, where the philosophy of “fake it until you make it” is sometimes wrongly celebrated. The case highlights the ethical dilemmas and risks faced by emerging tech firms eager to secure funding and establish credibility. For Outcome Health, which at one time appeared poised to transform healthcare communication, the scheme ultimately led to its downfall, tarnishing its reputation and causing substantial financial harm to stakeholders.
Outcome’s story is a cautionary tale for other companies navigating the pressures of rapid growth and high valuations. With billions of dollars invested in health tech and other burgeoning sectors, federal authorities are placing renewed focus on ensuring that start-ups and established firms adhere to legal and ethical standards.
Future Enforcement and Deterrence
The Justice Department, FBI, and other agencies involved in the Outcome case have made clear that enforcement efforts are intensifying. The scale and complexity of the fraud underscore the critical role of oversight in protecting investors, clients, and the public. By imposing significant sentences on the Outcome executives, authorities send a strong message that fraudulent business practices carry severe consequences.
The extensive investigative work in this case, involving multiple agencies, demonstrates the commitment of federal authorities to holding executives accountable and protecting stakeholders. As Outcome’s former leaders begin to serve their sentences, the case stands as a prominent example of corporate fraud enforcement, and it is likely to have lasting implications on corporate governance practices across the country.
In the coming months, Ashik Desai, Kathryn Choi, and Oliver Han will be sentenced, adding further closure to one of the most notable corporate fraud cases in recent years.
