Indian-American sentenced to 7.5 years jail term in $1 billion corporate fraud scheme

US District Judge Thomas Durkin sentenced 38-year-old Rishi Shah, an Indian-American businessman who was the cofounder of Outcome Health, to seven and a half years in prison on charges of corporate fraud of about $1 billion (₹8,300 crores).

Victims of the fraud included top investors like Alphabet Inc., the parent company of Google, the Goldman Sachs group, and a venture capital firm helmed by Illinois Governor JB Pritzker.

Healthcare advertising firm

Rishi Shah got the idea for his company when he was still a college student, according to a report by Bloomberg. He founded the company, initially known as Context Media Health, in 2006 along with another Indian-American cofounder Shradha Agrawal. Their firm introduced a new concept in medical advertising by setting up televisions at doctors’ offices which streamed advertising by pharmaceutical companies targeted at the patients.

The company grew fast, capitalising on the latent need in the market for companies to publicise their healthcare products and services. Outcome Health cleverly used the latest technologies to change the face of traditional healthcare marketing and thus gained the attention of high-profile investors. During the 2010s, Shah’s firm saw an exponential rise in its list of customers and attracted huge funds from investors.

Shaky foundation

However, unknown to the outside world, the whole edifice was built on a shaky foundation. According to the prosecutors, the two cofounders of Outcome Health, Rishi Shah and Shradha Agrawal, together with another defendant Brad Purdy, the chief financial officer of the firm, had cooked up a huge scheme that involved fraud and deception. The trio presented a false picture of the financial and operational health of Outcome Health to its clients, investors, and lenders.

At the heart of the scam was the fact that Outcome Health was selling more advertising inventory to its clients than it could deliver, and invented data to make up for the shortfall.

Among its prominent clients that were victims of this fraud was the multinational pharmaceutical company Novo Nordisk and other similar firms. They were fed wrong information by Outcome Health’s sales force about the size of its network and the reach of its advertising. The fraudulent marketing brought in more clients and revenue and increased funding from investors.

Playboy’s lifestyle

Rishi Shah indulged himself in all the luxuries that money could buy and lived the life of a playboy, going on extravagant holidays in private jets and yachts and buying a $10-million home. His net worth in 2016, just 10 years after he began the business, was said to be around $4 billion.

It was in 2017 that the cookie started to crumble, with an investigative report by the Wall Street Journal about the fraud perpetrated by Outcome Health. This was followed by legal action by a group of investors that included Alphabet, Goldman Sachs, Pritzker’s venture capital firm, and others. They accused Outcome Health of fraud in its $487.5 million fundraiser in early 2017 that included a $225 million dividend for the two cofounders Shah and Agrawal. The value of the company had fallen drastically thus leaving the investors with grossly overvalued stakes.

Convicted

The three main defendants, Shah, Agrawal, and Purdy were indicted on more than twelve counts of fraud and money laundering, and they were finally convicted of these charges in April 2023. Apart from Rishi Shah’s sentence of 7.5 years, the court sentenced Shradha Agrawal to 3 years in a halfway house and Brad Purdy to 2 years and 3 months in prison.

In addition to the criminal case, the Securities and Exchange Commission of the US has filed a civil case against Shah, Agrawal, and Purdy, and also Ashik Desai, the former chief growth officer of Outcome Health.

During the sentencing, Rishi Shah was remorseful and read out an apology. He admitted to having failed to rein in the aggressive growth tactics of Outcome Health, and for being instrumental in creating a culture in the company that encouraged the use of fraudulent practices. He confessed that he was “ashamed and embarrassed” by the misconduct that brought about the downfall of Outcome Health.