Investors that sunk nearly $500 million into Outcome Health are taking the startup to court to get their money back, claiming the company provided investors with fraudulent data and financial reports.
The investors further allege that Outcome Health’s founders, Rishi Shah and Shradha Agarwal, are attempting to move $225 million held in a subsidiary. Outcome has not provided investors with documentation about where that money is located, according to the complaint (PDF) filed in New York State Supreme Court in New York City on Tuesday, which was first reported by The Wall Street Journal.
In a statement emailed to FierceHealthcare, Shah and Agarwal denied that they took the $225 million for themselves.
“We had the right to take out this money, and we did not,” they said. “Instead, we decided to make the funds available for the company's continued growth towards its mission."
"Goldman Sachs’s strong-arm Wall Street tactics are especially outrageous given these investors are well aware that both of us have always conducted ourselves with complete integrity and transparency," they added. "The investors’ money grab simply is inexcusable and disappointing."
The lawsuit comes weeks after the WSJ reported that some employees at Outcome Health were providing misleading data to advertisers to boost revenue. Outcome installs free TV screens and tablets in doctors’ offices to assist with patient education. It generates revenue by selling targeted ads to pharmaceutical companies.
The Chicago-based startup is valued at $5.5 billion after closing an initial financing round of $500 million in May from high profile investors like Goldman Sachs and Alphabet’s growth equity fund CapitalG.
The complaint says the WSJ article prompted the investors to investigate claims Outcome had defrauded advertisers. In the process, one of the investors, Global Private Opportunities Partners (GPOP), discovered the founders “presented fraudulent and false information” to investors.
The lawsuit states that GPOP repeatedly asked Shah, who serves as the company’s CEO, for raw data from 2015 case studies presented to investors, but was rebuffed. Eventually, Outcome Health employees turned over the underlying data, which GPOP claims were fraudulent.
“Had plaintiffs known the truth about Outcome Holdings and Outcome Health, they never would have made their investments,” the complaint states. “Instead, because they relied on defendants’ knowingly false data and financial reports, and false representations in the Purchase Agreement, plaintiffs now hold securities that may be worthless.”
The investors allege Shah, Agarwal and Outcome Health committed fraud, breach of contract and negligent misrepresentation and requested the court prevent the founders from moving the $225 million out of a subsidiary account and return the $487.5 million invested in the company.
Outcome’s attorney Sanford Michelman called the lawsuit “the latest negotiating ploy” by Goldman Sachs, adding that there is “no merit to the claims.”
“These funds are earmarked for operations and repaying lenders, yet these equity investors are improperly trying to put themselves in front of the company's best interests,” Michelman said in an emailed statement.