Chicago-based digital OOH media network operators Outcome Health is being sued for fraud by some of its high profile backers, including Google and Goldman Sachs, and the US Justice Department is now getting involved.
The Chicago Tribune reports the Justice Department is subpoenaing investors in the wake of a lawsuit accusing the startup of committing fraud to secure nearly $500 million in funding.
The orders from federal investigators, revealed in court documents filed by investors Thursday, come as hospitals and health care advertisers back away from the fast-growing company, which places interactive screens and tablets in doctors’ offices. The court filing indicates investors also anticipate inquiries from the Securities and Exchange Commission.
The investors — including units of Goldman Sachs and Google and a fund co-founded by gubernatorial candidate J.B. Pritzker — sued Outcome Health, CEO Rishi Shah and President Shradha Agarwal on Tuesday in New York. The lawsuit followed a Wall Street Journal report last month that said some Outcome Health employees charged pharmaceutical companies for ads on more video screens than the company had installed.
The lawsuit says investors want to freeze $225 million in funding, alleging Outcome Health misled investors by “knowingly providing false data and financial reports before the firms invested $487.5 million beginning in March.” The $225 million was set aside in a subsidiary to pay investors dividends on the investment.
The suit says investors want their money back, claiming they “now hold securities that may be worthless.”
Outcome Health has denied the lawsuit’s allegations and has hired former U.S. Attorney Dan Webb to review issues raised in the Journal’s story.
“The company is committed to fully cooperating with any government investigation,” Outcome Health attorney Sanford Michelman said in a statement.
The Trib also reports some of the health care operators that host Outcome’s media screens are having second thoughts because of all this.
Earlier Thursday, representatives of Downers Grove-based Advocate Health Care and west suburban hospital system Edward-Elmhurst Health said they are pausing plans to expand their use of Outcome Health’s technology. The company’s screens run educational content about health topics for patients as well as advertisements from drug companies. The screens and educational content are free to doctors. Outcome Health makes money off the ads.
Advocate, Illinois’ largest hospital system, has about 500 of the Outcome Health devices now, mainly in outpatient settings, Advocate spokeswoman Lisa Lesniak said.
“We are monitoring the situation closely. In the meantime, we’ve paused plans to expand screen installation,” Lesniak said in an email.
Edward-Elmhurst, which just announced its partnership with Outcome Health this month, is backing away from its previous plans to roll out the technology systemwide. Elmhurst Hospital’s Nancy W. Knowles Cancer Center has been using the technology since June, and the system also has Outcome Health wallboards in nearly a dozen other physician offices throughout the system, spokesman Keith Hartenberger said.
Outcome made several big announcements in the last few months and become a high-profile player in Chicago’s efforts to develop and nurture a tech scene. Known for many years as Context Media, Outcome recently announced big hiring plans and naming rights to a flashy new office tower that will serve as its home.
This the response from CEO and Founder Rishi Shah to the reports this week:
Over the last few weeks you’ve likely read our response to media coverage that I hope demonstrates our commitment to integrity, accuracy and transparency. We have systems in place that ensure you are receiving accurate, independently verified confirmation about the performance of your current campaigns. Any operational issues that existed in the past are being addressed and resolved; we have new people, processes, and systems in place and continue to strive for operational excellence.
The allegation that some of our employees previously provided inaccurate or misleading information to our customers is deeply troubling and remains a priority for us to resolve. As you know, we immediately initiated an independent review by the law firm Winston & Strawn when we became aware of these allegations. This review is under way and we have full confidence that under Dan Webb’s leadership, the findings will be comprehensive, objective, and thorough. While it is ongoing, we have already taken steps to protect our customers’ trust in the platform and removed the employees from the daily business pending the completion of the review.
While our focus is on restoring trust in Outcome Health and providing the highest level of service for our customers, I do want to address an inaccurate statement that The Wall Street Journal had to correct: There is no allegation that Shradha and I took out dividends from the company after a recent funding round, and we certainly did not do that. We thank The Wall Street Journal for running a correction to set that record straight.
Instead, we set aside capital within our corporate structure that could have been distributed to shareholders. If there are any questions about whether we fully believe in the future of our business, we think these actions speak much louder than any words. In fact, when our investors learned of our plans to use this money for important business purposes, they went to court because they preferred to have the funds kept for themselves rather than invested in the further capitalization of the company.
We created Outcome Health because we recognized the power of creating meaningful and impactful engagement with patients at the point of care, and we remain committed to our mission: activating better health outcomes for every person in the world. To achieve this end, we are constantly investing in people processes and technology as we strive to set an even higher standard for ourselves and the industry. We appreciate your support and are always available to answer any questions you may have.
Dave Haynes is the founder and editor of Sixteen:Nine, an online publication that has followed the digital signage industry for more than 13 years. Dave does strategic advisory consulting work for many end-users and vendors, and also writes for many of them. He’s based near Halifax, Nova Scotia.