Rishi Shah: Indian-American CEO and President of Tech Startup Charged in Billion-Dollar Fraud

Historical Context: In the early 21st century, the tech industry saw a surge in startups, many of which attracted significant investments from major financial institutions and venture capital firms. This period also witnessed several high-profile fraud cases, where company executives engaged in deceptive practices to inflate their company’s value and secure funding. The case of Outcome Health is a notable example of such fraudulent activities.

Key Details:

• Rishi Shah, 38, co-founder and former CEO of Outcome Health, was sentenced to seven years and six months in prison on June 26.
• Shradha Agarwal, 38, co-founder and former president of Outcome Health, received a sentence of three years in a halfway house.
• Brad Purdy, 35, former COO and CFO of Outcome Health, was sentenced to two years and three months in prison.

Fraud Scheme: Outcome Health, a Chicago-based health technology startup, was involved in a fraud scheme that defrauded clients, lenders, and investors of approximately $1 billion. The company’s investors included prominent entities such as Goldman Sachs Group, Google parent Alphabet Inc., and Illinois Governor JB Pritzker’s venture capital firm.

Court Findings:

• The executives deceived clients, auditors, lenders, and investors by selling advertising inventory they did not possess and under-delivering on advertising campaigns.
• Despite under-deliveries, the company invoiced clients as if they had delivered in full.
• The executives lied to conceal the under-deliveries and inflated metrics to show higher patient engagement with Outcome’s tablets in doctors’ offices.
• The fraudulent activities spanned from 2011 to 2017, resulting in at least $45 million in overbilled advertising services.

Financial Misconduct:

• The under-deliveries led to a material overstatement of Outcome’s revenue for 2015 and 2016.
• The inflated revenue figures were used to secure $110 million in debt financing in April 2016, $375 million in December 2016, and $487.5 million in equity financing in early 2017.
• The financing rounds resulted in significant dividends for Shah and Agarwal.

Legal Proceedings:

• A federal jury convicted Shah, Agarwal, and Purdy in April 2023.
• Shah was convicted of multiple counts of mail fraud, wire fraud, bank fraud, and money laundering.
• Agarwal was convicted of mail fraud, wire fraud, and bank fraud.
• Purdy was convicted of mail fraud, wire fraud, bank fraud, and making false statements to a financial institution.
• Three other former Outcome employees pleaded guilty to related charges and are awaiting sentencing.

Investigative and Legal Efforts:

• The FBI and FDIC-OIG investigated the case, with assistance from the U.S. Securities and Exchange Commission.
• The case was prosecuted by the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Northern District of Illinois.

Summary:

• Rishi Shah, Shradha Agarwal, and Brad Purdy sentenced for billion-dollar fraud.
• Outcome Health defrauded clients, lenders, and investors, including Goldman Sachs and Google.
• Fraud involved selling non-existent advertising inventory and inflating engagement metrics.
• Executives used inflated revenue figures to secure significant financing.
• Legal proceedings resulted in multiple convictions and ongoing sentences for involved parties.

Bullet Points:

• Rishi Shah sentenced to 7.5 years in prison.
• Shradha Agarwal sentenced to 3 years in a halfway house.
• Brad Purdy sentenced to 2.25 years in prison.
• Outcome Health defrauded clients, lenders, and investors of $1 billion.
• Fraud involved selling non-existent advertising inventory and inflating metrics.
• Executives used inflated revenue to secure $972.5 million in financing.
• Federal jury convicted Shah, Agarwal, and Purdy in April 2023.
• Three other former employees pleaded guilty to related charges.
• FBI, FDIC-OIG, and SEC involved in the investigation.
• Case prosecuted by the Criminal Division’s Fraud Section and U.S. Attorney’s Office for the Northern District of Illinois.