Ousted Execs From U.S. DOOH Network Charged In $1B Fraud Scheme
December 31, 2019 by Dave Haynes
The people behind what grew into one of the biggest and highest profile digital OOH networks in the United States are now going through criminal proceedings, fighting charges from the Department of Justice that they led a $1 billion fraud scheme.
At the same time, the executive team that took over at Outcome Health is doing what it can to distance itself from the founders, and rebuild advertiser and host venue trust in the company, which has a network of more than 150,000 devices in 40,000-plus physician offices and health systems across the U.S.
The company has long focused on ad-supported custom content and functionality in “point of care” environments like diabetes and rheumatology clinics.
The DOJ filed criminal indictments in Chicago earlier this month against co-founders Rishi Shah and Shradha Agarwal, as well as former COO/CFO Brad Purdy, and former EVP business ops Ashik Desai. While Shah, Agarwal and Purdy have pleaded not guilty in court, Desai entered a guilty plea and could get serious jail time.
Separately, the Securities and Exchange Commission (SEC) has a civil complaint going against the executives, alleging the company’s successes and fortunes were falsely portrayed.
The DOJ’s indictments claimed the pharmaceutical companies that were the primary ad buyers were bilked of millions, by being sold ad inventory that did not exist. The DOJ also alleges the executives torqued financial statements to make sales look better, as Outcome went through investor fundraising rounds 2016 and 2017.
The SEC says the defendants in its civil suit raised $487 million, while providing “materially false financial statements and fake ROI studies to prospective investors and provided misleading information during in-person meetings.” It also says the executives misled the company’s auditors, in a cover-up effort.
From the SEC:
The SEC’s amended complaint alleges that Outcome Health’s former executives, CEO Rishi Shah, President Shradha Agarwal, CFO Brad Purdy, and Executive VP Ashik Desai, engaged in a fraudulent scheme to misrepresent the company’s business successes while raising hundreds of millions of dollars from unsuspecting investors. Outcome Health charges pharmaceutical company clients to display ads in doctors’ offices, and the amended complaint alleges the defendants were aware of or engaged in a scheme to bill clients and recognize revenue for ads it never ran.
The amended complaint also alleges that Outcome Health manipulated third-party studies to conceal problems delivering ads and make them appear more effective than they were. Outcome Health is alleged to have overstated its revenue in its audited financial statements for 2015 and 2016 by at least $14.3 million and $30 million, respectively, while raising approximately $487 million from a private offering to investors who relied on the false financial statements and false representations about the company’s growth. Nearly half of the funds raised went to Shah and Agarwal, Outcome Health’s co-founders.
Attorneys for the co-founders have said their clients are not guilty and eager to tell their story, and be exonerated, in court.
Holy crap!
I have met Shah and Agarwal through the years and was always left impressed by their energy, passion and smarts. I can’t speak knowledgeably, at all, to any of this. What I do know is that I’ve met a few people in this industry who I thought were kinda or seriously shady, and these two were not among them.
But there were perhaps warning signs – like getting flashy new digs, naming rights on an office tower, and news that Shah was living in a $50K a month rental mansion.
The team that was brought in and took over at Outcome Health has invested a lot of necessary time basically restoring confidence among big pharma and its agency partners, that the point of care network is financially stable, compliant in its media and financial reporting, and out of risk of prosecution.
The company, in October, announced a non-prosecution agreement with the DOJ “that resolves, with respect to the Company, the DOJ’s criminal investigation related to past misconduct by former employees. As described in the agreement, after reviewing the Company’s cooperation and remediation efforts, among other considerations, the DOJ determined not to prosecute Outcome Health for the past misconduct of the Company’s founders and select former employees, all of whom are no longer affiliated with the Company.“
“We’re thrilled to resolve this matter, as it enables us to move forward and focus on our mission to be the indispensable partner to patients, providers and industry partners during moments of care,” said Matt McNally, Chief Executive Officer, Outcome Health.
“Over the past two years, Outcome Health implemented a comprehensive overhaul of our compliance and campaign-reporting policies,” added McNally. “These actions included engaging third-party auditors to ensure reporting accuracy, investing in partnerships with organizations like BPA Worldwide to validate key performance indicators, overhauling internal controls to improve the reliability of reporting, and forming an all-new leadership team, myself included.”
The company was originally known as Context Media. While there have been no end of attempts to make a media model out of waiting rooms, few have succeeded. What was different about these guys was a focus on condition-specific scenarios like diabetes – running content that was hyper-relevant to viewers, and chasing ad dollars from big pharma instead of more generalized advertising. Drugmakers saw the value, and paid big premiums, to be directly in front of people, at moments when they’re thinking about things like managing diabetes.
Will be very interesting to see what comes out in criminal proceedings in 2020.
Holy crap is right, Dave. With the elapsed time between the flameout of the digital signage unicorn and these indictments, you can bet that a lot of legwork went into building the case against the executives. Given that Mr. Desai has pleaded guilty, he is either singing like a canary for a plea deal, or attempting to take the heat for the whole scheme while testifying that the super smart, hands-on founders knew nothing and suspected nothing. My money would be on the former, and the Feds would probably let Desai off easy for the goods on Rishi and Shradha, who banked most of the cash, and almost certainly banked it offshore. Don’t forget who got screwed worse than the advertisers in this deal… the major investors in the raise: Goldman Sachs, Alphabet (Google), and the Pritzker Group. Think they just said “aw shucks” when this blew up? Think they have any friends in the DOJ?