At the same time they were charged with criminal fraud by the Justice Department, the SEC filed a civil case against Shah, Agarwal and Purdy, accusing them of securities fraud and other related infractions in connection with raising $488 million six years ago from investors including Goldman Sachs, Google and Pritzker Group Venture Capital.
The investment valued Outcome Health at more than $5 billion, one of the highest valuations ever received by a venture-backed startup in Chicago. Outcome Health had built a network of doctors’ offices in which it installed TVs and computer tablets that carried educational information about diseases such as diabetes and arthritis, as well as advertising from drug companies.
Download Modern Healthcare’s app to stay informed when industry news breaks.
Shah, Agarwal and Purdy were convicted of overseeing a scheme in which the Chicago-based company frequently didn’t deliver advertising to the number offices paid for by the drug companies. But Outcome Health billed customers such as AbbVie in full, which inflated the startup’s revenue by nearly 25%, allowing the company to raise more money at a higher valuation than it would have otherwise received.
Ashik Desai, who also worked at Outcome Health, pleaded guilty and testified against Shah, Agarwal and Purdy.
The SEC case against the trio was pending while the criminal charges proceeded. The Justice Department is expected to seek restitution as well as prison time at sentencing, which is likely to happen in October. As part of the process, an asset-forfeiture hearing is expected to be held within the next month or two. Shah and Agarwal were paid $225 million in connection with the fundraising, though investors have recovered much of that. The co-founders also received $37.5 million in connection with a $110 million loan previously taken out by Outcome Health.
The SEC is seeking to bar Shah, Agarwal and Purdy from serving as officers or directors of companies that issue securities.
This story first appeared in Crain's Chicago Business.
