Two Indian-Origin Startup Founders Convicted Of $1 Billion Corporate Fraud In The US

Two Indian-origin executives of a Chicago-based start-up have been convicted by a federal jury in the US of running a $1 billion corporate fraud scheme that targeted the company¡¯s clients, lenders, and investors.

Fraud By Shradha Agrawal & Rishi Shah

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Following a 10-week-long trial, jurors on Tuesday found health technology company Outcome Health co-founder and former CEO Rishi Shah guilty on 19 of 22 counts, co-founder and former president Shradha Agarwal guilty on 15 of 17 counts, and former Chief Operating Officer Brad Purdy guilty on 13 of 15 counts.

Both Rishi Shah and Shradha Agrawal are 37 years old.

Shah was convicted of five counts of mail fraud, 10 counts of wire fraud, two counts of bank fraud, and two counts of money laundering.

Agarwal was convicted of five counts of mail fraud, eight counts of wire fraud, and two counts of bank fraud, while 33-year-old COO Purdy was convicted of five counts of mail fraud, five counts of wire fraud, two counts of bank fraud, and one count of making false statements to a financial institution, as per a PTI report.

The defendants face a maximum penalty of 30 years in prison for each count of bank fraud and 20 years imprisonment for each count of wire fraud and mail fraud.

Shah faces a maximum penalty of 10 years in prison for each count of money laundering. A sentencing hearing will be scheduled at a later date.

Also Read: Indian-Origin Engineer At FTX Pleads Guilty To Fraud Charges In The U.S.

Allegations By US Justice Department

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A statement issued by the Justice Department said on Tuesday that the company installed television screens and tablets in doctors¡¯ offices around the US and then sold advertising space on those devices to clients, most of whom were pharmaceutical companies.

According to the evidence presented at the trial, Shah, Agarwal, and Purdy sold advertising inventory the company did not have to Outcome¡¯s clients, then underdelivered on its advertising campaigns.

Despite these underdeliveries, the company still invoiced its clients as if it had delivered in full. As per the report. Shah, Agarwal, and Purdy lied or caused others to lie to conceal the underdelivery from clients and make it appear as if the company was delivering advertising content to the number of screens in the clients¡¯ contracts.

Purdy and others at the company also inflated metrics that purported to show how frequently patients engaged with the company¡¯s tablets installed in doctors¡¯ offices.

According to the trial evidence, the scheme targeting the company¡¯s clients began in 2011, lasted until 2017, and resulted in at least $45 million of overbilled advertising services.

Accused Of Defrauding Company's Lenders & Investors

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Shah, Agarwal, and Purdy were also convicted of defrauding the company¡¯s lenders and investors.

The under-delivery to the company¡¯s advertising clients resulted in a material overstatement of the company¡¯s revenue for the years 2015 and 2016.

Shah, Agarwal, and Purdy used inflated revenue figures in the company¡¯s 2015 and 2016 audited financial statements to raise $110 million in debt financing in April 2016, $375 million in debt financing in December 2016, and $487.5 million in equity financing in early 2017.

The trio lied to investors and lenders to conceal their ongoing underdelivery of advertising campaigns for clients.

The $110 million in debt financing resulted in a $30.2 million dividend to Shah and a USD 7.5 million dividend to Agarwal; the $487.5 million in equity financing resulted in a $225 million dividend to Shah and Agarwal.

The verdict represented a stunning fall for the three, who were once young stars of Chicago¡¯s tech scene. And it may have implications for others in the tech community, with parts of the case focusing on the line between startups¡¯ typical growing pains and fraud, the Chicago Tribune reported on Tuesday.

Statements In The Court

A spokesperson for Shah said in a statement: "Today¡¯s verdict deeply saddens Mr. Shah, and he will exhaust every avenue to overturn this result."

Theodore Poulos, an attorney for COO Purdy, said in a statement: ¡°We are profoundly disappointed with the jury¡¯s verdict in this complex and nuanced case, particularly given the plethora of evidence adduced at trial, which showed that certain critical information was intentionally withheld from Brad Purdy.¡± Lawyers for Agarwal declined to comment on Tuesday, the report said.

Three other former employees of Outcome pleaded guilty prior to trial. Ashik Desai, the former chief growth officer, pleaded guilty to one count of wire fraud. As per the report, Kathryn Choi, a former senior analyst, and Oliver Han, a former analyst, both pleaded guilty to conspiracy to commit wire fraud. Desai, Choi, and Han will be sentenced at a later date.

Also Read: Coinbase: Brothers Ishan, Nikhil Wahi Arrested In Crypto Fraud Case

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