Shradha Agarwal, left, and Rishi Shah
Federal prosecutors say the founders of Outcome Health “threw smoke bombs” to hide a years-long fraud scheme of selling more advertising to pharmaceutical companies than it had.
Using Rishi Shah’s words from a decade-old interview against him, prosecutors today laid out the case for the fraud they say was committed against customers and investors by Shah, co-founder Shradha Agarwal and former Chief Operating Officer Brad Purdy.
Shah, dressed in a charcoal suit; Agarwal, wearing a pale gray blazer; and Purdy, dressed in a gray suit, listened as attorneys offered different explanations of their actions. The three have pleaded not guilty to charges that carry a maximum prison term of 30 years if they’re convicted.
Outcome was one of Chicago’s highest-flying startups, growing to 500 employees, putting its name on a downtown office tower and raising nearly $500 million from investors such as Goldman Sachs, Gov. J.B. Pritzker’s former venture fund, Google and others. Its success began to unravel five years ago, when The Wall Street Journal first wrote that the company misled customers about the advertising it sold.
Kyle Hankey, a Justice Department prosecutor, told jurors the case is about “ambition, greed and fraud.”
“At its core, it’s about telling lies to get money,” he said. “It’s about lies told by ambitious young entrepreneurs to take their company to commanding heights.”
Outcome Health provided TVs and tablets free to doctors’ offices as a source of educational information to patients, and sold advertising on those screens to pharmaceutical companies, including AbbVie.
During a 2014 "Founders’ Stories" interview with Chicago entrepreneurs, a recording of which was played for jurors today, Shah described the delicate dance required early on to persuade doctors to sign up for TVs the company didn’t yet have, and getting drug makers to put ads on a network that wasn’t yet built.
“I call it the smoke bomb,” he said in the recording. “We threw a smoke bomb in the room. The execution on this is critical. We do both simultaneously. . . .Otherwise, it’s fraud. You’re selling something you don’t have.”
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Hankey said the smoke never really cleared, saying the defendants “lied to clients to get big contracts, they lied to collect money and lied to cover it all up.”
Shah’s attorney, Jon Hueston, had a different explanation, blaming another Outcome Health executive, Ashik Desai, who pleaded guilty to a fraud charge in 2020 and agreed to cooperate with prosecutors. Hueston immediately began pounding home a central theme of the defense: that Desai admitted to falsifying results of some metrics reported to advertisers but didn't tell Shah or others what he was doing.
“The true story in this case is about a fraud committed by Ashik Desai that crushed the dream of Mr. Shah to build a great company,” which Hueston characterized as “the American Dream.” He said Shah “poured everything he had into a company he built up from nothing.”
Hueston said Shah’s conduct wasn’t criminal. “His one fatal flaw was putting great trust and responsibility in one employee who would betray him. Did Mr. Shah commit errors of judgment, make mistakes and trust people he shouldn’t have? Yes. He didn’t commit fraud.”
Agarwal's attorney, Alex Lowder, also blamed Desai for the fraud. He said Agarwal, despite her title as president, was mostly involved in marketing, rather than sales or finance, which are operations central to the fraud charges.
Purdy’s lawyer, Ted Poulos, also blamed Desai and other managers. He then painted a picture of young executives trying to hold onto a rocket ship.
“What these kids did is remarkable,” he said. “They were dealing with Goldman Sachs, Google, Pritzker (Group), Pfizer, dealing with masters of the universe as young, inexperienced entrepreneurs. Huge investment firms were salivating over themselves to get a chunk of this company.”
This story first appeared in Crain's Chicago Business.
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