A federal jury in the US has convicted two Indian-origin executives of a Chicago-based start-up on charges of orchestrating a corporate fraud scheme that defrauded the company's clients, lenders, and investors of $1 billion.
After a 10-week long trial, Rishi Shah, co-founder and former CEO of health technology firm Outcome Health, was found guilty by jurors on Tuesday (11) on 19 of 22 counts, while co-founder and former president Shradha Agarwal was convicted on 15 of 17 counts, and former chief operating officer Brad Purdy on 13 of 15 counts.
Shah was convicted of five counts of mail fraud, 10 counts of wire fraud, two counts of bank fraud, and two counts of money laundering.
Agarwal was convicted of five counts of mail fraud, eight counts of wire fraud, and two counts of bank fraud, while Purdy was convicted of five counts of mail fraud, five counts of wire fraud, two counts of bank fraud, and one count of false statements to a financial institution.
The defendants face a maximum penalty of 30 years in prison for each count of bank fraud and 20-year imprisonment for each count of wire fraud and mail fraud.
Shah faces a maximum penalty of 10 years in prison for each count of money laundering.
A sentencing hearing will be scheduled later.
The Justice Department accused the company of selling advertising space on tablets and TV screens in doctors' offices, most of which were pharmaceutical companies.
The company then allegedly sold advertising inventory it didn't have to clients, under-delivered on campaigns, invoiced clients as if it had delivered in full, and inflated engagement metrics.
Trial evidence revealed that Shah, Agarwal, and Purdy defrauded their company's clients, overbilled at least USD 45 million for advertising services, and misled lenders and investors. They under-delivered advertising campaigns, overstated revenue for 2015 and 2016, and used inflated figures to secure debt and equity financing.
They used inflated revenue figures in the company's audited financial statements to raise USD 110 million in debt financing in April 2016, USD 375 million in debt financing in December 2016, and USD 487.5 million in equity financing in early 2017.
The trio lied to investors and lenders to conceal their ongoing under-delivery of advertising campaigns for clients. The USD 110 million debt financing resulted in a USD 30.2 million dividend to Shah and a USD 7.5 million dividend to Agarwal; the USD 487.5 million in equity financing resulted in a USD 225 million dividend to Shah and Agarwal.
The three once-promising figures in Chicago's tech industry suffered a significant downfall with the verdict, which may impact the tech community.
The trial's focus on distinguishing between startup growing pains and fraud could have broader implications, the Chicago Tribune reported.
A spokesperson for Shah said in a statement, “Today's verdict deeply saddens Mr. Shah, and he will exhaust every avenue to overturn this result.”
Theodore Poulos, an attorney for Purdy stated, “We are profoundly disappointed with the jury's verdict in this complex and nuanced case, particularly given the plethora of evidence adduced at trial, which showed that certain critical information was intentionally withheld from Brad Purdy."
Agarwal's lawyers declined to comment.
Additionally, three former Outcome employees, including Ashik Desai, the former chief growth officer, pleaded guilty to wire fraud. Kathryn Choi, a former senior analyst, and Oliver Han, a former analyst, pleaded guilty to conspiracy to commit wire fraud.
Sentencing for Desai, Choi, and Han will be announced at a later date.
(With inputs from PTI)
Monks sit on a stage next to portraits of tsunami victims as people take part in an interfaith ceremony at the Ban Nam Khem Tsunami Memorial Park in southern Thai province of Phang Nga on December 26, 2024. (Photo: Getty Images)
