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The FBI was conducting a criminal investigation of Outcome Health and its executives as recently as November, nearly a year after the company settled a civil lawsuit by big-name investors alleging Outcome Health and its co-founders committed fraud to secure almost $500 million in funding.
An affidavit for a warrant to search a company laptop, sought in November 2018, was briefly unsealed Wednesday in federal court in Chicago and contains allegations that there was “probable cause to believe” co-founders Rishi Shah and Shradha Agarwal and other employees “conspired to commit wire fraud…and committed mail and wire fraud.”
No charges have been filed against Outcome Health, Shah or Agarwal.
It was unclear if the federal investigation is continuing, but the U.S. attorney’s office moved quickly to reseal the affidavit for the search warrant on the same day.
The laptop was owned by Outcome Health and used by Brad Purdy, who held various roles including chief financial officer and chief operating officer until he left Outcome Health in or around February 2018. The laptop was already in the FBI’s possession, according to the affidavit. No charges have been filed against Purdy.
The document lays out in great detail allegations against the company and summarizes interviews that investigators conducted with “a number of former employees, some of whom admitted to engaging in fraud from 2014 to 2017.”
Besides the former employees and executives, the FBI also interviewed an executive associated with an unnamed investor, according to the affidavit.
“The government has also obtained and reviewed email, instant messages, text messages and voice messages that reflect former executives and employees’ knowledge of and participation in aspects of the fraud,” the affidavit alleges.
Shah and Agarwal founded Outcome Health in 2006 when they were students at Northwestern University. Outcome Health’s clients are pharmaceutical companies that pay the company to run ads and other content on screens and tablets placed in doctor’s offices and waiting rooms.
According to allegations in the affidavit, the FBI’s investigation found that Outcome Health “defrauded some of its pharmaceutical clients by, among other things, falsely representing to clients that it had in its network specific doctors that the pharma clients were targeting for advertising, lying to clients about how many TVs and tablets the clients’ advertisements were running on” and “fraudulently altering key performance metrics.”
In addition, the affidavit also alleges that “certain Outcome employees utilized false and misleading performance studies and accounting records to raise money on at least two separate occasions: (1) a $300 million loan in 2016, and (2) a $500 million capital raise in March 2017.” Furthermore, the affidavit goes on to allege that “The government has obtained emails that suggest that aspects of the fraud began earlier than 2014, at a time when the co-founders Shah and Agarwal were more involved in daily operations of the business.”
The FBI and FDIC’s Office of Inspector General started investigating former Outcome Health employees and executives in October 2017, according to the affidavit. That same month, the Wall Street Journal reported that some of the company’s employees provided inflated data to pharmaceutical companies.
The Journal said its review found nothing to implicate top executives’ involvement in allegedly misleading advertisers.
Efforts to reach Shah, Agarwal and Purdy were not immediately successful.
Shah and Agarwal stepped down from day-to-day management of the company to become chairman and vice chair of the board of directors in January 2018. Six months later, they resigned from the board.
The company cut ties to Shah and Agarwal in May when it restructured its debt, Crain’s Chicago Business has reported.
Among the former employees cited in the affidavit is an unnamed analyst who worked for Outcome Health from June 2014 until October 2015. He provided information to the FBI and the affidavit alleges that “he inflated numbers … representing to Outcome’s clients that it had more doctors in its network than it actually did.”
The FBI also interviewed a former executive who worked at Outcome from July 2013 to October 2017, oversaw sales and analytics and initially supervised the unnamed analyst, the affidavit alleges. The affidavit alleges the former executive told investigators he inflated performance numbers.
Additionally, the affidavit alleges that in late 2016, as Outcome Health sought venture capital funding, it provided a potential investor with inflated performance metrics. That investor made a $100 million investment, according to the affidavit. Three other investments by venture capital firms, also in 2017, brought the total outside investment in the company to $500 million.
As a result, the company’s valuation rose to $5.5 billion, and Shah, then 31, landed on the Forbes 400 ranking of richest Americans, with a net worth of $3.6 billion.
In November 2017, the Tribune reported that investors that provided $487.5 million — including units of Goldman Sachs and Google, and a fund co-founded by J.B. Pritzker — had sued Outcome Health, Shah and Agarwal, alleging fraud.
In January 2018, the investors and Outcome Health settled all litigation between the company and its investors. Shah and Agarwal stepped down from day-to-day management of the company as part of that settlement.
An earlier version of this story incorrectly listed Shah’s net worth as $3.6 million.