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Former Chicago tech stars found guilty in $1 billion federal fraud case

Outcome Health founders Rishi Shah and Shradha Agarwal and its former CFO Brad Purdy were all convicted of several counts of fraud on Tuesday.

CHICAGO (CN) — A federal jury in Illinois found a trio of executives for pharmaceutical advertising company Outcome Health guilty of multiple fraud counts Tuesday, concluding 10 weeks of trial.

That trial began at the end of January, after U.S. attorneys accused Outcome's founders Rishi Shah and Shradha Agarwal, both 37, as well as its former CFO Brad Purdy, 33, of running a scam on investors and clients from 2013 to 2017 that churned out close to $1 billion. The trio faced multiple charges of wire, mail and bank fraud between them, to which they pleaded not guilty.

On Tuesday the jury found Shah guilty of 19 fraud counts, Agarwal guilty of 15 counts and Purdy guilty of 13 counts, despite their pleas. Jurors deliberated for a day before reaching their verdicts.

“The defendants’ vast scheme damaged the clients, investors, and lenders who supported their business. Although they sought to hide the fraud by silencing whistleblowers and duping auditors, the jury today rightly held the defendants accountable for the losses they caused, which total hundreds of millions of dollars,” Acting Northern Illinois District Attorney Morris Pasqual said in a prepared statement.

Shah and Agarwal founded Outcome Health as ContextMedia LLC in Chicago in 2006. The company ran advertisements for different medications on TV screens and tablets in doctor's offices in exchange for a fee from the pharma companies whose products were being advertised. It was a very profitable venture, and for several years its executives were hailed as the up-and-coming wunderkinds of Chicago's tech sector. By 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 billionaire Democratic Illinois Governor J. B. Pritzker belongs to.

But the company's success also attracted the attention of former Northern Illinois District Attorney John Lausch's office. Under Lausch, who resigned in March, the office had been investigating a number of fraud and corruption cases throughout the Chicago area since 2017. In November 2019 prosecutors filed a fraud indictment against Shah, Agarwal and Purdy, as well as Outcome's former executive VP of sales Ashik Desai. The indictment claimed, among other things, that there were never as many screens in front of consumers' eyes as Outcome presented to its pharma clients.

"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 revenue in its financial statements.

The trio's defense attorneys did not deny that fraud had occurred, but instead placed the blame for the fraud on Desai — the youngest of the accused parties, currently 29. Unlike Shah, Agarwal and Purdy, Desai pleaded guilty to the fraud charges he faced and agreed to testify against his former colleagues at trial in exchange for a reduced sentence.

"Ashik Desai committed a brazen fraud," Shah's attorney John Hueston of the California law firm Hueston Hennigan said when the trial began, arguing Desai had conned the defendants as well as Outcome Health's customers.

At trial Desai admitted that he falsified financial reports without Shah, Agarwal or Purdy's knowledge, but prosecutors also presented evidence that Desai had communicated with the defendants over concerns that Outcome Health couldn't meet clients' demands.

Prosecutors also balked at defense attorneys' portrayal of Desai as a "boy genius" con artist, pointing out that he was only 20 when he began working for the company. There was no way, prosecutors argued, that a 20-year-old would have been able to outmaneuver three savvy financial operators — his mentors — at the top of Chicago's tech scene.

"This trial is about ambition, greed and fraud," Prosecutor Kyle Hankey said in January. "it's about lies to get money, and what it took to hide those lies."

A sentencing for the trio has not yet been set, though they could all face years in prison. A representative for Shah said he plans to appeal his conviction.

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Categories / Criminal, Financial, Law

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