Former Outcome Health executives found guilty of fraud

A federal jury convicted three former executives of the once-high-flying startup Outcome Health on several charges they ran a billion-dollar scheme that defrauded customers, including major pharmaceutical companies such as Novo Nordisk A/S and investors including Goldman Sachs Group Inc.

The verdict caps the fall of an executive team led by Rishi Shah, who was close to Illinois Gov. J.B. Pritzker and a budding star in Democratic circles before fraud was revealed in a Wall Street Journal article in 2017. Chicago’s then-Mayor Rahm Emanuel declared at a company press conference "as Outcome goes, so goes Chicago."

Mr. Shah, Outcome’s former chief executive and co-founder, along with former President Shradha Agarwal and former Chief Financial Officer Brad Purdy didn’t testify during the weekslong trial.

"Today’s verdict deeply saddens Mr. Shah, and he will exhaust every avenue to overturn this result," a spokesman for Mr. Shah said. A representative for Ms. Agarwal said her defense is reviewing the verdict. Mr. Purdy’s lawyer said he is disappointed in the jury’s verdict.

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Their defense team argued that a former executive who pleaded guilty to fraud, and who was the government’s star witness at trial, was responsible for the criminal conduct at the company. Two other employees who reported to that executive, Ashik Desai, each pleaded guilty to conspiracy to commit wire fraud.

Mr. Desai struck a deal with the government for a reduced sentence in exchange for testifying against his former bosses.

Mr. Shah was convicted on 19 of 22 criminal counts of wire, mail and bank fraud, while Ms. Agarwal was convicted on 15 of 17 counts and Mr. Purdy was convicted on 13 of 15 counts. The defendants could face years in prison as a result of the convictions. It is likely they will appeal the verdict.

Separately, the Securities and Exchange Commission has charged the three former executives and Mr. Desai with fraud and has obtained a partial consent judgment against Mr. Desai in that case, which is pending. Outcome itself admitted that its former executives and employees defrauded clients and agreed to pay them $70 million as part of a 2019 deal to resolve federal fraud charges.

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Outcome, which merged in 2021 with rival PatientPoint, operated a business installing video screens in doctors’ offices and charging pharmaceutical companies to run drug ads on the devices, which were targeted at patients sitting in the waiting room.

Such advertising wasn’t a new business, but Outcome’s fast growth attracted a roughly $500 million equity investment in May 2017 at a $5.5 billion valuation from investors, including Goldman, Google parent Alphabet Inc., Pritzker Group Venture Capital and the investment firm of Laurene Powell Jobs. Unlike most startup investments, a large amount was earmarked as a dividend for Mr. Shah and Ms. Agarwal: $225 million.

Investors sued the company after the Journal revealed the fraud, and the case was settled when Mr. Shah and Ms. Agarwal agreed to leave their executive roles and give back $159 million of the money they received from the investment.

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The company had also raised nearly $500 million in loans, $38 million of which went to Mr. Shah and Ms. Agarwal, according to a pretrial filing from prosecutors.

The government had alleged that Messrs. Shah and Purdy and Ms. Agarwal participated in a joint criminal venture to charge pharmaceutical company clients for running ads on more screens than Outcome had installed in medical offices and to conceal from clients, auditors, lenders and investors the extent to which they didn’t deliver the promised ad space. It also alleged that the company manipulated third-party reports to inflate the effectiveness of its advertising.

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Following the widely publicized prosecution of Theranos Inc. founder Elizabeth Holmes, the Outcome Health trial was another example of the government taking on what prosecutors in the trial called the technology world’s "fake-it-till-you-make-it" culture.