Former Outcome Health Executives Found Guilty of Fraud

Mr. Shah, Outcome’s former chief executive and co-founder, along with former President

Shradha Agarwal

and former Chief Financial Officer

Brad Purdy

didn’t testify during the weekslong trial.

“Today’s verdict deeply saddens Mr. Shah, and he will exhaust every avenue to overturn this result,” a spokesman for Mr. Shah said. A representative for Ms. Agarwal said her defense is reviewing the verdict. Mr. Purdy’s lawyer said he is disappointed in the jury’s verdict.

Their defense team argued that a former executive who pleaded guilty to fraud, and who was the government’s star witness at trial, was responsible for the criminal conduct at the company. Two other employees who reported to that executive,

Ashik Desai,

each pleaded guilty to conspiracy to commit wire fraud.

Mr. Desai struck a deal with the government for a reduced sentence in exchange for testifying against his former bosses.

Mr. Shah was convicted on 19 of 22 criminal counts of wire, mail and bank fraud, while Ms. Agarwal was convicted on 15 of 17 counts and Mr. Purdy was convicted on 13 of 15 counts. The defendants could face years in prison as a result of the convictions. It is likely that they will appeal the verdict.

Separately, the Securities and Exchange Commission has charged the three former executives and Mr. Desai with fraud and has obtained a partial consent judgment against Mr. Desai in that case, which is pending. Outcome itself admitted that its former executives and employees defrauded clients and agreed to pay them $70 million as part of a 2019 deal to resolve federal fraud charges.

Outcome, which merged in 2021 with rival PatientPoint, operated a business installing video screens in doctors’ offices and charging pharmaceutical companies to run drug ads on the devices, which were targeted at patients sitting in the waiting room.

Such advertising wasn’t a new business, but Outcome’s fast growth attracted a roughly $500 million equity investment in May 2017 at a $5.5 billion valuation from investors including Goldman, Google parent

Alphabet Inc.,

Pritzker Group Venture Capital and the investment firm of

Laurene Powell Jobs.

Unlike most startup investments, a large amount was earmarked as a dividend for Mr. Shah and Ms. Agarwal: $225 million.

Investors sued the company after the Journal revealed the fraud, and the case was settled when Mr. Shah and Ms. Agarwal agreed to leave their executive roles and give back $159 million of the money they received from the investment.

The company had also raised nearly $500 million in loans, $38 million of which went to Mr. Shah and Ms. Agarwal, according to a pretrial filing from prosecutors.

The government had alleged that Messrs. Shah and Purdy and Ms. Agarwal participated in a joint criminal venture to charge pharmaceutical company clients for running ads on more screens than Outcome had installed in medical offices and to conceal from clients, auditors, lenders and investors the extent to which they didn’t deliver the promised ad space. It also alleged that the company manipulated third-party reports to inflate the effectiveness of its advertising.

Following the widely publicized prosecution of Theranos Inc. founder

Elizabeth Holmes,

the Outcome Health trial was another example of the government taking on what prosecutors in the trial called the technology world’s “fake-it-till-you-make-it” culture.

“It was a company built on a lie,” said prosecutor

William Johnston

during the government’s closing arguments. The government made the case to the jury that fraud at Outcome predated Mr. Desai’s arrival at the company.

Defense lawyers said that before Mr. Desai arrived at the company, Outcome had been experiencing honest and steady growth and that the government failed to prove that executives taught Mr. Desai how to commit fraud at the company.

In video interviews posted online, Mr. Shah and Ms. Agarwal had described how they bootstrapped their business, negotiating upfront payments from advertisers to generate the cash necessary to install the screens where ads would run.

In one 2016 interview, Mr. Shah described the strategy as bringing “from the future what we need to fuel the future in the present, which is a concept we’ve recycled.”

The risk of that strategy, which Mr. Shah described in both a 2012 and 2016 interview, was that Outcome needed to execute with military precision. “It required you to sell an idea to both” doctors and advertisers, he said in 2016, “and then you couldn’t mistime it, because you know, that would be fraud, right? If you sell something that doesn’t exist.”

Write to Rolfe Winkler at [email protected], John Keilman at [email protected] and Patrick Thomas at [email protected]