Federal prosecutors seized $23.9 million from Shah and co-founder and co-defendant Shradha Agarwal when they were charged with fraud in 2019 in connection with raising nearly $1 billion from venture capitalists and lenders for their healthcare-advertising company Outcome Health. They personally received about $69 million in dividend payouts, much of which went into a variety of investment funds.
After their convictions, the feds moved to seize the assets. Shah challenged it, arguing that the government had frozen funds that weren’t traceable to the fraud at Outcome Health.
Much of the money prosecutors froze already had been invested in a dozen venture capital and other investment funds.
As an entrepreneur, Shah had been investing in startups before the fraud at Outcome Health, which happened between 2015 and 2017. He and Argarwal had put money in several of the same funds in which they invested tens of millions in payouts they received when the company raised money. (Shah owned 80% of their joint investment vehicle.)
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Prosecutors admit they inadvertently froze some funds that Shah and Agarwal invested before the fraud. It gets more complicated, however, because the value of many of those investments soared during the massive run-up in startup valuations between 2020 and 2022.
In one instance, a $1.2 million investment is now worth $22.3 million. However, just $550,000 of that original investment can be connected to the fraud at Outcome Health. That $550,000 is now worth $10.2 million, according to court filings.
Altogether, the value of Shah and Agarwal’s investments that were frozen by the government has roughly doubled to $50.2 million, according to court filings.
Shah’s attorneys and prosecutors are still fighting over whether the government is entitled to not only the initial proceeds of Shah’s and Agarwal’s payouts when they were frozen but also the appreciation since then.
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It’s no small matter: If Shah wins, he could get another $15 million.
The money is at issue because not only are Shah and Agarwal facing prison time when they’re sentenced, prosecutors also have said they will seek $400 million in restitution from the pair.
The co-founders, along with fellow Outcome Health executive Brad Purdy, were convicted of overbilling pharmaceutical companies, such as AbbVie, that advertised on Outcome Health’s network of television and computer screens in doctors’ offices. The overbilling inflated Outcome Health’s financials, which investors and lenders relied upon to fund the company.
This story first appeared in Crain's Chicago Business.
