Risk & Compliance

Ex-Outcome Health Execs Charged With Fraud

The SEC says the CFO and two other executives misrepresented Outcome's financial performance to raise nearly $500 million from investors.
Matthew HellerNovember 26, 2019
Ex-Outcome Health Execs Charged With Fraud

Three former top executives of Outcome Health, including the CFO, have been charged with engaging in a “massive” revenue recognition fraud to raise nearly $500 million for the healthcare advertising company from investors.

The charges announced on Monday against CEO Rishi Shah, President Shradha Agarwal, and CFO Brad Purdy are the latest twist in a scandal that resulted in Chicago-based Outcome agreeing last month to a $70 million settlement with the Department of Justice.

In a civil complaint, the U.S. Securities and Exchange Commission said the three executives and Ashik Desai, an executive vice president who reported to Shah, spun a false narrative to investors that showed Outcome had a history of exponential growth when, in fact, it “was routinely billing clients – and recognizing revenue – for ads it never ran.”

Financial statements provided to investors overstated Outcome’s revenue in 2015 and 2016 by at least 23%, the SEC said.

Criminal fraud charges against Shah, Agarwal, and Purdy were also unsealed on Monday. Desai had been charged earlier this month by both the SEC and DoJ.

“Today’s action seeks to hold Outcome Health’s most senior executives accountable for an alleged massive fraud,” Steven Peikin, co-director of the SEC’s Division of Enforcement, said in a news release.

“We charge that these C-suite officers defrauded investors out of hundreds of millions — and [Shah and Agarwal] lined their own pockets — through blatant lies about the company’s financial and business performance,” he added.

Shah met both Agarwal and Purdy while they were all students at Northwestern University. Purdy joined Outcome as chief operating officer in 2012 and became CFO in 2015.

Between August 2016 and July 2017, Outcome raised approximately $487 million in a private offering. In the years leading up to the offering, the SEC said, Outcome “routinely lied to its clients at every stage of its ad campaigns,” billing them as if it had performed in full and improperly recognizing those billings as revenue.

“Each of the defendants knew about the vast consumer fraud at the heart of Outcome’s business, and each helped to perpetuate it,” the commission alleged.