Former Outcome Health executive settles SEC fraud allegations

Medical justice
Former Outcome Health executive Ashik Desai reached a settlement with the U.S. Securities and Exchange Commission, but allegations still stand against three other former Outcome Health executives named in the lawsuit. (Getty/yavdat)

Former Outcome Health executive Ashik Desai reached a settlement with the U.S. Securities and Exchange Commission (SEC) involving fraud allegations, the Chicago Tribune reported Wednesday.

The SEC filed a lawsuit in November against Desai and three other former Outcome Health executives. The SEC's complaint alleged that the four executives committed securities fraud in raising roughly $487 million in financing. It sought the return of allegedly ill-gotten gains plus interest, penalties and injunctive relief.

Desai along with former CEO Rishi Shah, President Shradha Agarwal, and Chief Financial Officer Brad Purdy engaged in a "fraudulent scheme to misrepresent the company's business successes while raising hundreds of millions of dollars from unsuspecting investors," the SEC's lawsuit (PDF) stated.

The settlement was filed in Chicago federal court on Tuesday. Any monetary relief and penalties will be determined later.

SEC allegations still stand against three other former Outcome Health executives named in the lawsuit, the Chicago Tribune reported.

RELATED: Outcome Health to pay $70M to resolve federal fraud investigation

The former four executives and employees also face criminal charges for their roles in an alleged $1 billion fraud scheme at the healthcare technology company.

Shah, Agarwal and Purdy pleaded not guilty to those charges.

Desai pleaded guilty to the criminal charges against him in December and agreed to cooperate with the government’s investigation. His agreement with the SEC will remain in place regardless of proceedings in the criminal case, according to the court documents filed Tuesday, the Chicago Tribune reported.

Desai had served as executive vice president of business operations and chief growth officer of Outcome Health.

Outcome, formerly called ContextMedia, was one of Chicago’s high-flying startups, pulling in $500 million during its first round of funding in May 2017 and attracting high-profile investors like Goldman Sachs and Google’s parent company, Alphabet. The company was valued at $5.5 billion at the time.

The company installs TVs and tablets in physicians' offices and sells targeted ads to pharmaceutical companies.

RELATED: Outcome Health co-founders, former executives charged in alleged $1B fraud scheme

Outcome's headcount once topped 600, according to Crain's Chicago Business, and the company had plans at one point to add 2,000 new jobs by 2022. Outcome's troubles, which started in 2017, led to nearly 200 employees, or a third of the company, taking voluntary buyouts.

The four executives were aware of or engaged in a scheme to bill clients and recognize revenue for ads it never ran, according to the SEC complaint.

"Starting in the second half of 2016, they regaled investors with Outcome’s history of exponential revenue growth, touted Outcome’s vast and growing network of participating doctors’ offices, and shared the results of third-party return-on-investment studies showing that Outcome’s clients, on average, enjoyed a 5:1 return on their advertising dollar," the complaint states.

“Unfortunately, the narrative Outcome spun for prospective investors was a sham. In reality, Outcome’s success was built largely on a simple and pervasive fraud: Outcome was routinely billing clients—and recognizing revenue—for ads it never ran," the SEC lawsuit said.

In November, Outcome Health agreed to pay $70 million to resolve a criminal fraud investigation in Illinois and admitted that from 2012 to 2017, former executives and employees of the company fraudulently sold ads to clients.

The settlement with the Department of Justice resolves "past misconduct of the company’s founders and select former employees, all of whom are no longer affiliated with the company," Outcome Health executives said in a statement in November.