Rishi Shah, 38, an Indian-American ex-billionaire has been sentenced to seven and a half years in prison after being convicted of defrauding investors such as Goldman Sachs, Alphabet and the Pritzker Group venture fund of $1 billion, Bloomberg reported.
Shah is co-founder of advertising start-up Outcome Health, which provided ads on televisions and in doctors’ offices, it added.
He and two other Outcome executives — including one more Indian American — were convicted on over 12 counts of fraud and money laundering charges by a federal jury last year, the report stated. The sentence was pronounced last week by Chicago US District Judge Thomas Durkin, it added, citing a July 1 statement by the United States Attorney’s Office.
The three accused were identified as co-founder and former CEO Shah, co-founder and former President Shradha Agarwal (38), and former chief operating officer and chief financial officer of Outcome Brad Purdy (35), the report said.
They were accused of lying to pharmaceutical companies, taking money for ads never placed, and then misrepresenting the health of the company to investors.
The Case
Formerly known as ‘Context Media Health’, it was founded by Shah in 2006 when he was a student at Chicago’s Northwestern University. He “rapidly” gained prominence in Democratic circles and even netted investment from Illinois Governor JB Pritzker’s venture capital firm before the fraud was exposed in 2017 by the Wall Street Journal.
Describing Shah was the “driving force behind a dizzying array of lies to clients, lenders, investors and an audit firm”, prosecutors had asked for a 15-year sentence for him.
Prosecutors had further asked for 10-year sentences each for Agarwal and Purdy. But Judge Durkin sentenced them to three years in a half-way house and two years and three months in prison, respectively.
The company “oversold” ads compared to what it could actually broadcast and lied to MNC clients such as Novo Nordisk A/S about the size of its TV network in US doctors’ offices, prosecutors ad securities regulators told the court, the report said.
The fraudulent ad sales worth hundreds of millions of dollars allowed Shah a “lavish lifestyle”, including weekend trips on private yachts and jets, and a $10 million home. He raised money based on bogus financial statements in 2016 and his net worth was reported at more than $4 billion, prosecutors said.
“Outcome’s former executives deceived their clients, their auditor, their lenders, and their investors for years. Their sentences should serve as yet another reminder that ‘faking it until you make it’ is not an acceptable practice for any business,” Principal Deputy Assistant Attorney General Nicole M. Argentieri, head of the Justice Department’s Criminal Division, said in the statement.
‘Ashamed, Embarrassed’, Says Shah
In a prepared statement before the court last week, Shah told the Justice Durkin that he was “ashamed and embarrassed” by his failure to properly manage his company, adding that an “aggressive push for growth” led to “a number of fatal mistakes” that included not tracking the delivery of ads paid for by clients.
“The culture I created permissioned people on my team to think it was okay to create false data in response to client questions,” he reportedly said.
Investors including Alphabet, Goldman and Pritzker sued Outcome in 2017 claiming fraud tied to a $487.5 million fundraising that same year, which they said led to a $225 million dividend pocketed by Shah and Agarwal.
Further, the US Securities and Exchange Commission (US SEC) sued Shah, Agarwal, Purdy and former chief growth officer Ashik Desai for alleged use of false financial statements to raise funds.
Desai and another two other Outcome employees pleaded guilty to charges before the criminal trial against the company’s top executives.
(With inputs from Bloomberg)