(Bloomberg) — A former Chicago billionaire and longtime traveler has been sentenced to 7 1/2 years in prison for a billion-dollar fraud at an advertising startup that counted among its investors Goldman Sachs Group Inc., Google parent Alphabet Inc. and Illinois Gov. J.B. Pritzker’s venture capital firm.
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Rishi Shah, 38, the co-founder of Outcome Health, a company that ran ads on doctors’ office televisions, was convicted of more than a dozen counts of fraud and money laundering by a federal jury last year. He and two other Outcome executives were sentenced last week in Chicago by U.S. District Judge Thomas Durkin, the U.S. attorney’s office said in a statement Monday.
Prosecutors had sought a 15-year prison sentence, describing Shah as the “driving force behind a dizzying series of lies to customers, lenders, investors and an auditing firm.” He and the other executives were accused of lying to drug company clients and accepting money for ads that never aired, then misrepresenting the company’s health to investors.
Before the fraud was exposed in a 2017 Wall Street Journal article, Shah was a rising star in Democratic circles. Shah came up with the idea for Outcome — then known as Context Media Health — in 2006 while he was a student at Northwestern University, just north of Chicago. The company’s rapid growth over the next decade boosted its public profile. Then-Mayor Rahm Emanuel told a company news conference, “If Outcome is going to work, Chicago is going to work.”
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But Outcome’s claims of exponential revenue growth were driven by fraud, as the company sold more ads than it could run and lied to clients like pharmaceutical giant Novo Nordisk A/S about the size of its network of TVs in doctors’ offices, prosecutors and securities regulators say.
The company’s increased cash flow from advertising sales and financing allowed Shah to extract hundreds of millions of dollars from Outcome to live a lavish lifestyle, including weekends on yachts and private jets and a $10 million home, the government said. After raising more money from lenders and investors based on false financial statements in 2016, Shah’s net worth was estimated at more than $4 billion, prosecutors said.
“Outcome’s former executives deceived their customers, their auditor, their lenders, and their investors for years,” Nicole M. Argentieri, principal assistant attorney general and head of the Justice Department’s criminal division, said in the statement. “Their sentences should serve as another reminder that ‘fake it till you make it’ is not an acceptable practice for any business.”
Shah told the judge last week in a prepared statement that he was “ashamed and embarrassed” by his failure to properly manage the company’s aggressive growth push, which led to “a number of fatal mistakes,” including failing to track the delivery of ads paid for by customers.
“The culture I created allowed my team members to believe it was acceptable to create false data in response to customer questions,” he said in the statement, which was filed with the court.
Shah was sentenced in April 2023, along with Outcome’s president and co-founder, Shradha Agarwal, and CFO Brad Purdy. Prosecutors had sought 10-year sentences for Agarwal, 38, and Purdy, 35. But Durkin sentenced Agarwal to three years in a halfway house and Purdy to two years and three months in prison.
A group of funds, including those owned by Goldman, Alphabet and Pritzker, were among the investors that sued Outcome in 2017, claiming it was a fraud linked to a $487.5 million fundraising that year that led to a $225 million dividend pocketed by Shah and Agarwal.
Additionally, the U.S. Securities and Exchange Commission (SEC) sued Shah, Agarwal, Purdy and former chief growth officer Ashik Desai, alleging they used false financial statements to raise money. Desai and two other Outcome employees pleaded guilty to the charges brought against the company’s top executives in the criminal trial.
The criminal case is: United States v. Shah, 19-cr-00864, United States District Court, Northern District of Illinois (Chicago).
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