The married co-founders of uBiome have been charged with defrauding investors out of $60 million by falsely portraying the company as a medical testing success story that generated reliable revenue from insurance reimbursements.
The U.S. Securities and Exchange Commission said CEO Jessica Richman, 46, and Chief Scientific Officer Zachary Apte, 36, duped doctors into ordering unnecessary tests and used other improper practices to access the lucrative reimbursements on which uBiome “relied to create the appearance of rapid increases in revenue growth.”
The couple touted uBiome to investors in a private Series C offering in 2018 as having a “strong track record of reliable revenue” when, in fact, its purported success was “a sham,” the SEC said in a civil complaint. The offering raised $60 million, with Richman and Apte allegedly pocketing about $5 million each from the sale of their personal holdings in uBiome.
A federal grand jury has also indicted them on fraud charges in a related criminal case.
“Richman and Apte touted uBiome as a successful and fast-growing biotech pioneer while hiding the fact that the company’s purported success depended on deceit,” Erin Schneider, director of the SEC’s San Francisco Regional Office, said in a news release.
The charges come nearly a year after FBI raided uBiome, forcing the company to stop selling its tests. It filed for Chapter 7 bankruptcy in October 2019.
uBiome had pivoted in 2016 from offering consumers a fecal test for identifying gut microorganisms to clinical tests that doctors would order and insurers would reimburse. By the first quarter of 2018, it generated nearly 91% of its revenue from reimbursements.
But according to the SEC, uBiome steered physicians toward ordering the tests without establishing the required doctor-patient relationship and deceived them into ordering “many tests of dubious clinical utility,” including retests of consumers’ old samples.
Investors were told the tests were “ordered by doctors, reimbursed by insurance,” but even before the end of the Series C offering, the SEC said, “Defendants knew that multiple insurers had challenged the company’s practices, with one alleging that uBiome was engaged in ‘fraud and abuse.’”