Rishi Shah and Shradha Agarwal are using a novel argument in asking a federal judge to throw out their April convictions on federal fraud charges or at least grant them a new trial.
Shah and Agarwal, co-founders of Outcome Health, say prosecutors seized more of their assets than they should have before trial, which left the two without enough money to hire the attorneys who were their first choices.
The improper forfeiture “amounts to misconduct by the government that violated Mr. Shah’s right to due process under the Fifth Amendment. Because it is not possible to restore Mr. Shah to the position he would have been in prior to the violation of his constitutional rights, the appropriate remedy is for this Court to dismiss the charges against Mr. Shah,” Shah’s attorneys said in a filling Friday.
“In the alternative, Mr. Shah requests that the Court set aside his conviction and order a new trial at which he may support his defense using the funds and assets that the government has unlawfully restrained for the past three years.”
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Agarwal’s attorneys made a similar argument in a filing on Friday, which was the deadline for post-trial motions before sentencing.
Shah, Agarwal and Brad Purdy were the top executives at Outcome Health, which sold advertising on television and computer screens that were installed in doctors’ offices to provide educational content.
The company took off in 2012, and soon reached $100 million in revenue, becoming one of Chicago’s most well-known startups. It raised more than $300 million from lenders and $488 million from investors such as Goldman Sachs, Google’s parent company and a venture fund founded by Gov. J.B. Pritzker.
But the company was accused of over-billing pharmaceutical clients for millions of dollars in ads they didn’t receive, which inflated the company’s financials that were used to raise money from lenders and investors. After Shah and Agarwal were indicted in 2019, prosecutors froze roughly $30 million that the co-founders received in a settlement with investors after fraud allegations were made against Outcome Health.
Among those funds was $10.3 million Shah and Agarwal had put up to retain lawyers to represent them. They tried to get the money released, argued that it came from investors and lenders who were defrauded in the scheme for which Shah and Agarwal were indicted. U.S. District Judge Thomas Durkin sided with prosecutors.
Shah had put up more than $7 million to hire Quinn Emanuel Urquhart & Sullivan in Washington, D.C., led by William Burck, a white-collar defense lawyer at who was among the prosecutors who convicted Martha Stewart, and Jonathan Bunge. Agarwal had put up $3.8 million to hire the law firm McGuire Woods.
Burck estimated their defenses combined would cost $14 million to $15 million.
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“I withdrew from the criminal case because I knew that, in light of the (court’s) order, Mr. Shah did not have adequate funds available for Quinn Emanuel to defend him through the conclusion of a trial in the criminal case,” Burck wrote in a statement filed last week. “Had the court granted Mr. Shah access to the funds, it was my understanding that he would have preferred to continue with myself and Mr. Bunge as his defense counsel in the criminal case and would have retained us for that purpose. Under those circumstances, my colleagues and I would have accepted the representation, but in light of Mr. Shah’s inability to raise the required funds after the issuance of the order, we declined the representation.”
Shah ultimately hired Hueston Hennigan, a Los Angeles law firm led by former Enron prosecutor John Hueston. Agarwal hired Los Angeles law firms Larson LP and Willkie Farr & Gallagher.
Shah has been fighting the forfeiture of his assets, which is normally a straightforward procedure following a conviction. However, he was an active startup investor before he received nearly hundreds of millions in payouts when Outcome Health raised money from lenders and investors between 2016 and 2017, and his attorneys argue that millions of dollars in assets frozen by the government were invested before then and aren’t connected to crimes.
One of Shah’s attorneys, Richard Finneran of Bryan Cave Leighton Paisner, who has represented him in the forfeiture proceedings, argues that at least $4.8 million in assets, such as startup investments, were improperly frozen and that they had quickly appreciated to more than $20 million. The improper seizure was discovered during the middle of the 10-week trial, according to the filing.
“At the very least, the violation of Mr. Shah’s rights under the Constitution and the federal forfeiture laws requires a new trial. But under the peculiar circumstances of this case, a new trial is not enough,” Finneran argues. “Given the fact that the trial has already occurred, and Mr. Shah has already expended considerable resources defending his case with substitute counsel over the course of more than three years, a new trial is insufficient to “restore [Mr. Shah] to the status quo ante,” which is the proper remedy for such a constitutional violation. As a result, “[i]f there was a . . . violation, dismissal of the indictment is required.” Id
Shah, Agarwal and Purdy made other arguments in seeking to have their convictions thrown out by Durkin, mostly arguing that the jury shouldn’t have reasonably convicted them based on the evidence.
This story first appeared in Crain's Chicago Business.
