New York judge denies request to freeze $225M as Outcome Health investors flag 'dramatic' executive turnover

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In an amended complaint, investors point to "dramatic" executive turnover at Outcome Health in 2017.

A New York Supreme Court judge denied a request from Outcome Health investors to freeze $225 million in funding following accusations that the company misled a group of high-profile investors.

The ruling, which was first reported by the Chicago Tribune, is a small victory for the company and its founders—CEO Rishi Shah and President Shradha Agarwal—in what appears to be a lengthy legal battle. The group of investors that includes Goldman Sachs and CapitalG, a venture capital arm of Google’s parent company Alphabet, sued the Chicago-based startup last week alleging the company’s founders provided fraudulent data and financial reports leading up to a $487.5 million investment earlier this year.

Outcome, which installs TVs and tablets in physician offices and sells targeted ads to pharmaceutical companies, is also facing an investigation from the Department of Justice, and investors expect the Securities and Exchange Commission will launch its own probe.

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The investors asked the court to put a freeze on the $225 million that was distributed to the founders and was supposed to be held in a subsidiary of Outcome Health, according to the complaint, but the judge denied the request.

“Rishi and Shradha remain hopeful they will be able to use the funds for investing back into the business they built, which continues to meet the important needs of patients and doctors alike,” Michael Carlinsky of Quinn Emanuel, attorney for founders of Outcome Health said in a statement to FierceHealthcare.

An amended complaint filed by investors on Monday points to high turnover among the company’s senior management. Five of Outcome’s 12 executives have left the company or gone on paid leave in 2017, according to the complaint. Additionally, investors claim 17 “high-level” executives departed in 2017. Eleven of the employees listed in the complaint have a senior vice president, vice president or director title.

A spokesperson for Outcome Health noted that about one-third of the positions listed the complaint are not senior level staff, and the list includes some employees that were terminated. The spokesperson added that more than 250 employees have been hired in the last year.

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The court filing also includes a letter from an attorney representing Michael Getty Atienza, who became the head of growth strategy at Outcome in March. Atienza resigned on Nov. 3, weeks after The Wall Street Journal reported some employees misled advertisers.

Atienza’s attorney states Shah “fraudulently induced” Atienza to join the company after recruiting him for six months using manipulated data to outline the company’s rapid growth. The letter states Outcome Health has been “deliberately manipulating the business data” from an outside vendor, which has harmed Atienza’s business reputation “through his affiliation with such a dishonest and deceitful company.”

“This was an intentional and deliberate act by Outcome Health to lie to clients and investors about the state of its business,” the letter states.