Outcome Health may be facing more than just a lawsuit. In court documents, Goldman Sachs and several other investors say the Department of Justice and the Securities and Exchange Commission are investigating the Chicago-based startup for fraud.
The investors sued Outcome Health this week to recoup $487 million they sunk into the company earlier this year, alleging the startup provided investors with fraudulent data and financial reports. The lawsuit was filed weeks after a Wall Street Journal report that employees at Outcome Health, which installs tablets and TVs in physician offices and sells ads to pharmaceutical companies, misled advertisers.
In a court filing on Thursday, Goldman Sachs, Leerink Transformation Partners, the Pritzker Group, Norwest Venture Partners, Balyasny Asset Management and Prudence Outcome Holdings indicated they were receiving subpoenas from the DOJ as part of a fraud investigation and anticipate additional inquiries from the SEC.
The Wall Street Journal reports that a pharmaceutical customer that purchased ads from Outcome Health has also received a DOJ subpoena.
The DOJ spokesperson said the agency does not confirm or deny investigations. An SEC spokesperson declined to comment.
In a separate filing to the Supreme Court of the State of New York, Outcome Health called the investor’s allegations of fraud “baseless” and urged the court to deny a motion to restrain $225 million in funds that were held in a subsidiary.
The company repeatedly pointed to preliminary findings by an attorney hired to investigate reports that Outcome Health employees had misled advertisers with inflated data. Although that investigation is still ongoing, the company argues that there is no evidence senior management was involved in the misconduct.
“The company is committed to fully cooperating with any government investigation,” Outcome Health attorney Sanford Michelman of Michelman & Robinson said in a statement to FierceHealthcare.
But a sworn affidavit (PDF) from Kenneth Eberts, managing director of Goldman Sachs who also served as the director for the parent company of Outcome Health, highlights several instances in which Outcome Health provided investors with case studies that deviated from the raw data. In one example, the company said nearly 1,600 offices ran advertisements for a certain drug when the raw data indicates there were just over 1,000 offices participating in the campaign. In 10 of the 21 cases investors reviewed, the raw data didn't align with the case study.
Eberts claimed the company also falsified financial figures, highlighting one example in which Outcome calculated an ad campaign had generated more than $1.7 million in new revenue for a pharmaceutical company, but data showed revenue amounted to just $81,600.
“In short, although the study represented that the campaign was a dramatic success, the pharmaceutical company actually lost 85% of its $560,000 investment,” Eberts' affidavit stated.