Dive Brief:
- Brad Purdy, former CFO of Outcome Health, fraudulently raised nearly half a billion dollars by falsely portraying the company as an overwhelming success, the U.S. Securities and Exchange Commission (SEC) charged Monday.
- Also charged were CEO Rishi Shah, President Shradha Agarwal and Executive VP Ashik Desai.
- Separately, the U.S. Attorney's Office for the Northern District of Illinois and Fraud Section of the U.S. Department of Justice announced criminal charges against these and two other executives.
Dive Insight:
Outcome Health charges pharmaceutical company clients to display ads in doctors' offices.
Purdy and the others engaged in a scheme to bill clients and recognize revenue for ads their company never ran, the SEC says.
The company also manipulated third-party studies to conceal problems delivering ads and make them appear more effective than they were.
In its financials, the company overstated 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, the SEC says.
"Purdy oversaw Outcome’s accounting, knew about the massive ad delivery failures, and knew that Outcome was recognizing revenue for ads that never ran," the SEC said in its complaint.
"In sum, he knew – or recklessly disregarded – that Outcome’s financial statements were materially false because they reflected revenue that Outcome had not earned. He also knew – or recklessly disregarded – that the ROI data sent to investors was false (as it did not reflect Outcome’s massive and pervasive delivery failures). Yet, Purdy did nothing to correct the financial statements before he provided them to investors, repeated the artificially inflated revenue figures for fiscal years 2015 and 2016 during in-person meetings with prospective investors, and sent 28 ROI reports to investors (when he knew – or recklessly disregarded – that the ROI data had been manipulated)," the complaint said.
Nearly half of the funds raised went to Shah and Agarwal, Outcome Health's co-founders, according to the complaint.
"We charge that these C-suite officers defrauded investors out of hundreds of millions — and the co-founders lined their own pockets— through blatant lies about the company's financial and business performance," said Steven Peikin, co-director of the SEC's Division of Enforcement.
The SEC filed the complaint in federal court in Chicago. It charges the defendants with violating antifraud provisions of federal securities laws. The SEC seeks return of the money raised, with interest, penalties, and injunctive relief. It also seeks to bar Purdy, Agarwal and Shah from serving as officers in a company subject to federal regulation under the Securities Exchange Act.
