Outcome Health co-founder resisting government efforts to seize assets

Rishi Shah isn’t giving up his money without a fight.

Attorneys for the co-founder of Outcome Health, who was convicted of federal fraud charges in April, challenged prosecutors’ claim on assets that were frozen after he was indicted nearly four years ago.

Keep up with one the industry’s fastest growing sectors. Sign up for Digital Health Intelligence.

Among those assets were startup investments, some of which have appreciated by millions of dollars since they were frozen.

Prosecutors say Shah got $55 million in payouts from investors and lenders to Outcome Health in 2016 and 2017 that were the result of the fraud for which he was convicted. The government contends that the payouts, in the form of dividends, went to accounts held by Shah, which then were used to invest in various venture funds, including one that he ran called Jumpstart Ventures.

Unlike the Theranos fraud case in which founder Elizabeth Holmes didn’t receive any of investors' money before the startup failed, Outcome Health had a successful product that produced more than $100 million in annual revenue. Shah and co-founder Shradha Agarwal received payouts of about $69 million.

Not a Modern Healthcare subscriber? Sign up today.

Because of their fraud convictions, those payouts are subject to forfeiture. Forfeiture hearings in criminal cases are generally routine because “in most cases, the government can trace the property it seeks to forfeit,” says Shah’s attorney, Richard Finneran of Bryan Cave Leighton and Paisner. “That wasn’t the case here.”

Shah’s co-defendant, Agarwal, did not contest the government’s request to forfeit $13.7 million she received as dividends from a $110 million loan that Outcome Health received in 2016 and a $488 million investment from venture funds, including Goldman Sachs, Google and Pritzker Group Venture Capital.

The government listed assets belonging to Shah of about $28 million in a forfeiture filing. Matt Madden, an assistant U.S. Attorney, said he plans to seek an order to garnish other assets Shah might have to make up the difference and ultimately pay what he estimates will be more than $400 million in restitution to investors, lenders and customers.

Shah plans to fight the garnishment because “it implicates his ability to secure the counsel of his choice, which is his right under the Sixth Amendment,” Finneran says.

Download Modern Healthcare’s app to stay informed when industry news breaks.

Shah’s assets were ordered frozen when he was indicted along with Agarwal and Brad Purdy, former COO for Outcome. Finneran contends Shah made investments with funds other than the dividends he received from Outcome Health, but the government can't tell which are which.

He questioned the accuracy of how the government traced the funds Shah received from Outcome Health, including those used to purchase a mansion at 924-926 N. Clark St. for $8 million. But Megan Poelking, an FBI accountant, defended her work, noting that two of Shah's bank accounts in question had no money in them before the dividend distributions.

Attorneys are expected to make additional filings in the case, and it’s not clear when a decision will be issued.

This story first appeared in Crain's Chicago Business.