Former Outcome Health execs found guilty on most fraud charges

Five years after the once highflying Chicago tech company Outcome Health began to unravel, a jury has found all three of its former leaders guilty of multiple counts of fraud, while acquitting them of several other counts.

The jury deliberated for about two days before reaching its verdict Tuesday morning. The verdict followed a 10-week-long trial.

Jury members found Outcome co-founder and former CEO Rishi Shah guilty on 19 of 22 counts. They found co-founder and former President Shradha Agarwal guilty on 15 of 17 counts.

The jury found Brad Purdy, the company’s former chief operating officer and chief financial officer, guilty on 13 of 15 counts.

Some of the counts carry sentences of up to 30 years in prison. Any prison time will be decided during sentencing, but that hearing date has not yet been set.

The verdict represented a stunning fall for the three who were once young stars of Chicago’s tech scene. And it may have implications for others in the tech community, with parts of the case focusing on the line between startups’ typical growing pains and fraud.

A spokesperson for Shah, now 37, said that he hopes to appeal.

“Today’s verdict deeply saddens Mr. Shah, and he will exhaust every avenue to overturn this result,” the spokesperson said in a statement Tuesday.

Theodore Poulos, an attorney for Purdy, 33, said in a statement Tuesday: “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.

“Regretfully, throughout his tenure at Outcome Health, he trusted and believed in his colleagues and failed to ask the questions that a more seasoned executive might have asked,” Poulos said. “Brad is an extremely honorable and intelligent young man and I have no doubt that he will be a very valuable member of the business world in the future, having learned very hard and costly lessons about that world in this case.”

Lawyers for Agarwal, 37, declined to comment Tuesday.

Outcome sold advertising to pharmaceutical companies, with the ads running on TVs and tablets that Outcome installed in doctors’ offices and waiting rooms. During the trial, prosecutors alleged that Shah, Agarwal and Purdy lied about how many doctors’ offices had screens and tablets running their content. Prosecutors said they then used those false numbers to overcharge drug companies for advertising, and inflated revenue figures used to get loans and raise money from investors.

Over the years, Outcome was able to raise nearly $1 billion from lenders and high-profile investors, including a fund co-founded by Gov. J.B. Pritzker and units of Goldman Sachs and Google.

In 2011, Outcome had only 16 employees, but by 2017, the company had grown to more than 500 employees and had a reported valuation of more than $5 billion.

That breakneck growth earned Outcome’s founders Shah and Agarwal respect and riches. Shah, who owned 80% of Outcome, was named to the Forbes 400 ranking of richest Americans in 2017, with a net worth of $3.6 billion at the age of 31. Agarwal owned 20% of the company.

Their success, however, began to crumble when a former Outcome analyst contacted the Wall Street Journal, which then ran a 2017 article revealing the alleged problems at Outcome. The company lost business, investors sued and Shah and Agarwal stepped down. In 2019, Outcome, as a company, agreed to pay $70 million to pharmaceutical companies to resolve a federal fraud investigation. The criminal fraud trial that just concluded focused on Outcome’s three top executives as individuals.

Throughout the case, defense attorneys placed the blame entirely on a fourth former Outcome employee, Ashik Desai. Desai had already pleaded guilty to one count of wire fraud before the trial, and he testified that he falsified screen shots and return-on-investment reports without his bosses’ knowledge. As part of an agreement with the government, Desai could get a reduced prison sentence for his testimony.

Defense attorneys argued that the defendants trusted Desai, and he repeatedly reassured them that everything was aboveboard whenever questions arose. They argued that Desai was a master con man, who lied to his bosses to further his own career and feed his ego.

“He just lies and lies and lies,” Poulos said of Desai during the trial. “That is his essence.”

Government prosecutors tried to poke holes in the theory that Desai acted without his bosses’ knowledge by showing communications between the defendants, and, in some cases, Desai, in an attempt to demonstrate that they were aware of underdeliveries to clients and wanted to fire workers who raised concerns.

Prosecutor Matthew Madden ridiculed the idea that Desai, who joined the company when he was 20 years old, was a criminal mastermind capable of completely deceiving his bosses.

“The defendants were the CEO, the president and COO/CFO, the top three executives at the company,” Madden told jurors during the trial. “They ran that business day-in and day-out for years, yet the lawyers have portrayed them as if they were truly clueless about the business they created and ran. ... It is laughable for them to suggest that Ashik outsmarted them.”

It was a complex case that featured about 1,500 exhibits, many in the forms of emails, documents, texts and voice messages.

A number of the fraud counts on which the three were convicted were related to checks Outcome accepted for drug companies’ advertisements despite not playing the drug companies’ ads on enough screens. Others were related to money Outcome accepted from banks and investors after providing them with “false and misleading” information, according to prosecutors.

Shah and Agarwal were also convicted on a handful of counts having to do with an episode in which a newly hired executive left the company after only three weeks in 2017, after becoming concerned with Outcome’s business practices. When the executive started raising concerns, Shah and Agarwal exchanged communications about whether to fire him and other employees who had tipped him off. Defense attorneys had argued that Shah and Agarwal were concerned that the executive didn’t fit the company’s culture, and had been reassured by Desai that nothing was amiss.

The jury also found Shah guilty of two money laundering counts related to $450,000 that prosecutors said he spent to lease a Chicago home, and $65,000 he spent to hire a private jet for a weekend trip. Prosecutors said those dollars were proceeds of the bank fraud.

Throughout the case, prosecutors argued that Outcome leaders believed it was acceptable for startups to fudge numbers and clean up later.

It’s an issue that has gained national attention in recent years after the fraud conviction of Theranos founder Elizabeth Holmes, and legal actions surrounding the collapse of cryptocurrency exchange FTX and its founder Sam Bankman-Fried.

Prosecutors highlighted a 2017 voice message from Shah to Purdy, regarding problems with affidavits, return-on-investment reports and forecasting at Outcome.

“If you talk to people who were at Google or Facebook from, you know a hundred million to a billion (dollars), they will tell you these are normal things,” Shah said. “Google data was false and totally crazy in foreign markets in the early years.”

Desai also said during his testimony that Shah had told him it was normal for startups to have “messy kitchens.”

The verdict Tuesday is a reminder that startups must follow the law, said Ira Weiss, a clinical professor at the University of Chicago Booth School of Business, who was not involved in the trial.

“There are limits to ‘fake it til you make it,’ ” Weiss said in an email after the verdict. “Outcome Health had clearly gotten to the point where they had ‘made it,’ and once you get to that point, you must stop faking it.”

Shah’s attorney, John Hueston, argued during the trial that Outcome was “making it until Desai arrived and began faking it,” while prosecutors alleged that Outcome had long been engaging in fraud.

“Even when they wanted to turn the corner and embark on making it, they knew that the truth about their fraud-filled growth could not see the light of day, not if they wanted to get $1 billion from their lenders and investors,” prosecutor William Johnston said during the trial.

Though they were criminally convicted Tuesday, Shah, Agarwal and Purdy still face charges from a civil lawsuit filed by the U.S. Securities and Exchange Commission over the fraud allegations. Two other former Outcome employees, Kathryn Choi, a former senior analyst, and Oliver Han, a former analyst, also previously both pleaded guilty to conspiracy to commit wire fraud, and have not yet been sentenced.

lschencker@chicagotribune.com