(Bloomberg) — A former Chicago billionaire has been sentenced to seven and a half years in prison for a $1 billion fraud scheme at an advertising startup that involved Goldman Sachs Group Inc., Google’s parent company Alphabet Inc. and Illinois Gov. J.B. Pritzker’s venture capital firm.
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Rishi Shah, 38, co-founder of Outcome Health, which ran television ads in doctors’ offices, was convicted by a federal jury last year on more than a dozen fraud and money laundering charges. 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 clients, lenders, investors and an accounting firm.” He and other executives were accused of lying to clients of pharmaceutical companies, taking money for ads that never ran, and then misrepresenting the company’s health to investors.
Before the fraud was exposed in a 2017 Wall Street Journal story, 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, and the company’s meteoric rise over the next decade raised his public profile. Then-Mayor Rahm Emanuel declared at a company news conference, “As goes Outcome, so goes Chicago.”
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But prosecutors and securities regulators say Outcome’s claims of exponential revenue growth were based on fraud. The company sold more ads than it could air and lied to clients like pharmaceutical giant Novo Nordisk A/S about the size of its TV network in doctors’ offices.
The company’s surge in cash from ad sales and financing allowed Shah to siphon off hundreds of millions of dollars from Outcome to live a lavish lifestyle, including weekend getaways on private yachts and jets and a $10 million home, the government said. After raising more money from lenders and investors in 2016 based on false financial statements, Shah’s net worth was reported at more than $4 billion, prosecutors said.
“Outcome’s former executives spent years defrauding their clients, their accountants, their lenders and their investors,” Principal Deputy Assistant Attorney General Nicole M. Argentieri, head of the Justice Department’s Criminal Division, said in the statement. “Their sentences should serve as yet another reminder that ‘faking it until you can’ is not an acceptable practice for any business.”
Shah told the judge in a prepared statement last week that he was “ashamed and embarrassed” by his failure to properly manage the company’s aggressive growth drive, which led to “a number of fatal errors,” including failing to keep up with the delivery of advertising paid for by customers.
“The culture I created gave people on my team the right to think it was okay to create false data in response to client questions,” he said in the statement, which was filed with the court.
Shah was convicted in April 2023, along with Outcome President and co-founder Shradha Agarwal and Chief Financial Officer 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 Goldman, Alphabet and Pritzker were among the investors who sued Outcome in 2017, alleging fraud in connection with a $487.5 million fundraise that year, which led to a $225 million dividend pocketed by Shah and Agarwal.
In addition, the U.S. Securities and Exchange Commission has charged Shah, Agarwal, Purdy and former chief growth officer Ashik Desai with using false financial statements to raise money. Desai and two other Outcome employees pleaded guilty to the charges ahead of the criminal trial of the company’s top executives.
The criminal case is U.S. v. Shah, 19-cr-00864, U.S. District Court, Northern District of Illinois (Chicago).
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