Three former executives of Outcome Health, a health tech startup, have been sentenced to prisonfor fraudulently embezzling nearly $1 billion from investors and lenders.
Rishi Shah, 38, is the co-founder and former CEO of Outcome Health, a company founded in 2006 in Chicago (it was known as Context Media before January 2017). He was sentenced to seven and a half years in prison.
The company's former president, Shradha Agarwal, 38, was sentenced to three years in a halfway house.
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Finally, Brad Purdy, 35, former COO and CFO of Outcome Health, was sentenced to two years and three months in prison.
Outcome Health provided TVs and tablets for waiting rooms in doctors’ offices and displayed ads on those devices for primarily pharmaceutical customers. However, the company sold ad inventory it didn’t have and inflated metrics showing how many patients were interacting with the content while waiting in clinics and offices.
According to the US Department of Justice, from 2011 to 2017, executives carried out this fraud ad.
As a result revenue figures in 2015 and 2016 were artificially inflated. Thus, the three executives, Shah, Agarwal and Purdy, managed to raise $110 million from ininvestors April 2016, an additional $375 million in December 2016 and $487.5 million in early 2017.
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According to the Justice Department, the $110 million financing resulted in a $30 million dividend for Shah and a $7.5 million dividend for Agarwal. The $487.5 million equity financing resulted in a $225 million dividend for both.
“Former Outcome executives defrauded their clients, their auditors, their lenders and their investors for years,” said Principal Deputy Assistant Attorney General Nicole Argentieri, head of the Justice Department’s Criminal Division.
«Their sentences should serve as a reminder that “fake it until you make it” is not acceptable business, whether that company is a start-up or a well-established one. Lying about your revenue to get clients or funding is plain and simple fraud.».
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It is worth noting that investment scams are among the most profitable scams, with attackers raking in more than $4.5 billion, according to the FBI.
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Such frauds can have a devastating impact on a company's reputation. The revelation that key executives (as in the case of Outcome Health) have been involved in a multi-million dollar fraud can shake the confidence of investors, customers and partners.
The company's operations can also be negatively affected, and there may be legal consequences for the company (beyond the executives).
The long-term impact of fraud on a company’s reputation and operations is difficult to fully assess. Even if the company manages to recover, the shadow of the fraud will continue to haunt it, affecting its ability to attract new investors, customers, and talent.
Source: www.infosecurity-magazine.com
