Feds can take millions from Outcome Health founder, judge rules

A federal judge mostly rejected Rishi Shah’s efforts to keep the government from seizing millions of dollars now that he’s been convicted of fraud.

But it’s still not clear how much money the feds will get — or when.

Related: Here's how much Outcome Health's founder spent fighting fraud charges

U.S. District Judge Thomas Durkin ruled this week that the government can seize $55 million in Shah’s assets, including a 15,000-square-foot River North mansion that he bought five years ago for $8 million.

The feds sought a preliminary forfeiture ruling after Shah’s conviction in April. But the founder and former CEO of high-flying startup Outcome Health took the unusual step of fighting the government. It's just another way that one of Chicago's biggest corporate fraud sagas has dragged on. The case is entering its fifth year and will stretch into 2024 with sentencing now scheduled for February. 

Although Durkin rejected most of the arguments as to why the government shouldn’t be allowed to seize most of the millions it froze when he was indicted four years ago, the fight has paid off for Shah. He got back more than $13 million in funds that the government mistakenly froze because the money didn’t come from the fraud, and he’s likely to get access to some other funds to pay high-profile and high-priced attorneys to handle his sentencing and appeal his conviction.

Shah was convicted of fraud in April after a 10-week trial, along with Outcome Health co-founder Shradha Agarwal and Brad Purdy, the company’s chief financial officer. Shah could face a maximum of nearly 400 years in prison when he is sentenced Feb. 5, according to court filings. 

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The government says $55 million is the cut Shah received directly from investors and lenders when they provided nearly $1 billion to his former health care-advertising company before it crumbled amid allegations of rampant overbilling of pharmaceutical customers.

However, the feds could only trace about $30 million of the payouts, which largely were invested in private-equity and venture-capital funds. However, many of those assets ballooned in value during the run-up in startup valuations during the time that Shah was awaiting trial.

The government will benefit from those gains, despite Shah’s arguments to the contrary.

Durkin also will allow the feds to eventually go after untainted assets it froze in order to satisfy the $55 million judgment. However, Shah also will be allowed to use some of that money to hire attorneys to appeal his conviction.

“The court is inclined to allow Shah use of at least some of the restrained substitute property to secure counsel of his choice, but Shah has not indicated how much he anticipates needing for that,” Durkin ruled.

For now, Durkin is allowing the government to proceed with seizing Shah’s assets that can be traced to the fraud scheme. He’s also letting feds continue to restrain untainted assets up to $55 million. But the judge is not letting the government seize those assets not directly connected to the fraud until the forfeiture order is finalized, which usually happens at sentencing.

This story first appeared in Crain's Chicago Business.