Outcome Health agreed to a $70 million settlement with the Department of Justice to settle a fraud scheme that hobbled the once-high-flying startup.
Outcome, which sold advertising to pharmaceutical companies on a network of TV screens in doctors offices, admitted to defrauding advertisers by selling inventory that it did not have, the Justice Department said in a statement.
"Outcome's payment of $70 million is an appropriate resolution for the corporate entity, given the misconduct of executives and employees acting on its behalf," said Assistant U.S. Attorney Brian Hayes, chief of the criminal division for the Northern District of Illinois. "This resolution demonstrates that there are significant consequences for businesses whose executives and employees engage in fraud."
While the company has settled with the Justice Department, the federal investigation is ongoing. Outcome, formerly called ContextMedia, was one of Chicago's high-flying startups, raising nearly $500 million from top-shelf investors, including Goldman Sachs, Pritzker Group Venture Capital and the venture arm of Google's parent company in May 2017.
Several months later, the Wall Street Journal reported that Outcome had to reimburse customers for overcharging them for advertising on screens they did not have, as well as misleading those customers about the increases in prescriptions that resulted from their advertising.
Things soon unraveled, and the Justice Department announced an investigation. Investors soon sued, as well, contending founders Rishi Shah and Shradha Agarwal, had misled them.
The investors ultimately dropped the suit, reaching an agreement with the founders in which they reinvested money in the company. Shah and Agarwal left day to day management and the board, and, after a recapitalization, were no longer shareholders.
Outcome not only overcharged clients, the company overstated its revenue for the years 2015 and 2016, the Justice Department said.
"The company's outside auditor signed off on the 2015 and 2016 revenue numbers because executives and employees at the time fabricated data to conceal the under-deliveries from the auditor," the agency said.
Outcome's fraud allowed it to borrow $475 million and raise $487.5 million in equity.
The $70 million is set aside for restitution, most of which already has been made, either in cash payments or in-kind services. Lenders and investors got no restitution but got ownership of the company instead.
"Over the past two years, Outcome Health has focused on doing right by our customers. In short, we are a completely new company," McNally said in a statement. "As the DOJ agreement acknowledges, we have new management, new owners and new controls in place. We are excited to turn the page from this inquiry. Over the past two years, Outcome Health implemented a comprehensive overhaul of our compliance and campaign-reporting policies."
"Outcome Health reaches $70M settlement with Justice Department" originally appeared in Crain's Chicago Business.