CHICAGO (CN) — The three heads of pharmaceutical advertising company Outcome Health were in Chicago's Dirksen Federal Courthouse on Monday to face trial on a collective 26 counts of wire, mail and bank fraud.
Federal prosecutors accuse Outcome's founders Rishi Shah and Shradha Agarwal, as well as its former CFO Brad Purdy, of running a scam on their investors and clients from 2013 to 2017 that churned out close to $1 billion. The trio have pleaded not guilty to all charges.
Shah and Agarwal founded Outcome Health as ContextMedia LLC in Chicago in 2006. Its business is to run advertisements for different medications on TV screens and tablets in doctor's offices, in exchange for a fee from the pharma companies whose products are being advertised. It's been a successful enough operation that in 2017 the company was valued at $5.5 billion, $3.6 billion of which was personally claimed by the then-31-year-old Shah. The same year, Outcome received a $500 million investment from Goldman Sachs, Google affiliate CapitalG and the Pritzker Group, a venture capital firm run by the same wealthy family that Democratic Illinois Governor J. B. Pritzker belongs to.
But the company's swift rise also attracted the attention of the U.S. Attorney's Office for the Northern District of Illinois, which under U.S. Attorney John Lausch had been investigating a number of fraud and corruption cases throughout the Chicago region since 2017. In November 2019, Lausch's office filed an indictment against the trio, as well as Ashik Desai, Outcome's former executive VP of sales. The indictment claimed, among other things, that there were never as many screens in front of consumers' eyes as Outcome claimed.
"It was... part of the scheme that despite the under-delivery on advertising campaigns, Shah, Agarwal, Purdy, Desai and others working at their direction caused monthly affidavits to be sent to clients that falsely represented that Outcome had performed its contractual obligations by running advertisements on the contracted number of screens and offices," the 2019 indictment states.
The indictment also accused Outcome of overreporting consumer engagement with the tablet ads, placing ads in different doctors' offices than those requested by clients, and falsely inflating its revenue in its financial statements.
Federal prosecutors repeated those accusations in their opening arguments on Monday, following a full week of jury selection.
"This trial is about ambition, greed and fraud... it's about lies to get money, and what it took to hide those lies," Justice Department attorney Kyle Hankey told the jury. "They sold advertising inventory that they didn't have to their clients. They billed their clients for advertising they didn't deliver."
The prosecutor painted Shah and Agarwal as greedy tech entrepreneurs whose ambitions outstripped their ability to deliver on Outcome's promised services. He alleged that the pair had lied "from the outset," overstating how many offices in which their company could feasibly place advertisements.
"They oversold advertising inventory to their client... It told its clients that it had more offices than it really had," Hankey said.
He also told jurors they didn't need to believe his words. Instead, he played a video from a 2012 interview of Shah, in which the entrepreneur seems to admit that Outcome's business model always skirted fraud.
"We couldn't get the advertising without the doctors' offices, we couldn't get the doctors' offices without the advertising," Shah said in the video, describing the "two-sided market" problem with having to deal with both doctors and pharma clients.
Shah said Outcome solved this problem by "throw[ing] a smoke bomb": getting both doctors and drug companies to commit to deals simultaneously, promising each party that their counterpart had already signed on. Getting the commitments simultaneously was important, Shah stressed, because any delay would mean one of the parties wasn't buying anything from Outcome except a handshake.
"Otherwise it's fraud, you're selling something you don't have," Shah said in the video, with Agarwal sitting next to him.
Hankey concluded his opening arguments by claiming that the trio of defendants regularly fired employees who caught on to Outcome's alleged fraud scheme, including one accountant who was only with the company for two weeks before being shown the door. That accountant is scheduled to testify during the trial.
In the trio's own opening arguments, Shah's attorney John Hueston, of the California law firm Hueston Hennigan, did not contest that some fraud occurred at Outcome. Instead, he laid blame for the fraud on the 29-year-old Desai.
Unlike Shah, Agarwal and Purdy, Desai pleaded guilty to the two wire fraud charges he faced in December 2019.
Prosecutors painted Desai, who is scheduled to testify as a government witness, as a younger protégé of Shah who followed along with Outcome's alleged fraud scheme at his mentor's instruction. Hueston, conversely, accused Desai of carrying out the fraud scheme without the defendants' knowledge.
"Ashik Desai commited a brazen fraud," Hueston said.
He also noted that it took Hankey 24 minutes to even mention Desai in the government's opening statement.
"They're burying [Desai]... that's inetntional. They want you to think that he's just a little pawn. That's not what the evidence will show," Hueston argued.
Hueston claimed Desai was a canny business operator, despite only being in his early 20s while the alleged fraud scheme was underway. He wowed investors to the point that Hueston said they considered him "a little boy genius." His charisma and savvy was such, Hueston claimed, that Agarwal and Shah relied on him to broker many of Outcome's "smoke bomb" deals.
"He ran every deal," Hueston said.
The defense attorney concluded his opening statement by telling the jury that Shah, Agarwal and Purdy were simply inexperienced businesspeople who put their trust in a dishonest colleague. They could perhaps be accused of mismanagement and naiveté, he argued, but only Desai knowingly carried out fraud.
"What the evidence will show is that [Desai] lied to Shah's face," Hueston said.
The trio's trial is expected to last several weeks before attorneys return for their closing arguments. If found guilty, all three of the defendants could face several years behind bars.
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