Outcome Health trial gets underway with prosecutors alleging former execs were involved in $1 billion fraud scheme

The former leaders of Outcome Health were greedy fraudsters, the government alleged during opening arguments in their criminal trial Monday morning, while defense attorneys described them as earnest executives who were deceived by their underlings.

The three defendants — former Outcome Health CEO Rishi Shah, President Shradha Agarwal and executive Brad Purdy — are on trial in Chicago, charged with bank fraud, mail fraud and wire fraud.

The federal government alleges the trio participated in a $1 billion fraud scheme. Outcome placed screens and tablets in doctors’ offices and waiting rooms that ran educational content and pharmaceutical ads. But federal prosecutors allege that the three lied about how many doctors’ offices had screens and tablets running their content. The government alleges that they then used those exaggerated numbers to overcharge drug companies for advertising and inflate revenue figures used to get loans and raise money from investors.

All three have pleaded not guilty to the charges. Some of the counts against them carry sentences of up to 30 years in prison. The trial is expected to last as long as 14 weeks.

During opening arguments Monday, attorneys made it clear that much of the trial will focus on what the three knew and didn’t know about the alleged fraud.

“This trial is about ambition, greed and fraud,” said Kyle Hankey, an attorney for the government. “This trial is about lies told by ambitious, young entrepreneurs to take their company to commanding heights.”

Hankey told the jury during opening arguments that Shah, Agarwal and Purdy sold advertising inventory they didn’t have, charged pharmaceutical clients as if they had delivered the advertising in-full, lied to banks and investors and then took actions to keep them from learning the truth. As he spoke, Shah occasionally nodded his head in disagreement.

Hankey told the jury they’ll see text and voice messages between the defendants as well as hear testimony from former Outcome employees.

One of those former employees, Ashik Desai, is expected to be a star witness in the trial. Desai has already pleaded guilty to one count of wire fraud.

Much of the case will likely hinge on whether Desai was a naive, impressionable pawn in the alleged scheme or the mastermind.

Desai is expected to testify that Outcome told pharmaceutical company clients that it had screens in more doctors’ offices than it really did and underdelivered on ad campaigns while charging clients as if it had delivered in full, according to a court filing by the government. He’s also expected to testify about alleged efforts to deceive an outside auditor who examined Outcome’s business, and that he repeatedly presented misleading return-on-investment results to clients.

In his opening arguments, Hankey described Desai as a “perfect fit” for Shah and Agarwal’s alleged fraud scheme. Desai was only 20 years old when he started working at Outcome, and he looked up to Shah as a mentor, Hankey said.

“They found a willing student in Desai, eager to please his new teacher,” Hankey said.

The defense, however, describes Desai as a master con man who duped his bosses, while he committed the alleged fraud.

Shah’s attorney, John Hueston, called Desai a “wunderkind” who impressed his bosses and earned their trust. They believed him, even as he allegedly falsified return-on-investment reports, Hueston said.

“Did Mr. Shah trust people he shouldn’t have? Yes, and he’s going to have to live with that,” Hueston said. “But what he didn’t do, is he didn’t commit fraud.”

Hueston argued Monday morning that Shah showed a pattern of trying to get to the bottom of problems within the company, as he dealt with the operational challenges that accompanied Outcome’s rapid growth — contrary to the government’s allegation that Outcome’s leaders deflected whistleblowers.

“There is no way the CEO knows what every one of those people is doing every day,” Hueston said of the company’s more than 500 employees, at its height.

Defense attorneys emphasized that the government must prove the trio intended to defraud with their actions.

“That she failed to discover fraud committed by a trusted colleague is not fraud,” said Amos Alexander Lowder, an attorney for Agarwal.

They also told the jury that many of the allegedly damaging emails and messages they’ll see have been taken out of context.

“We expect you’ll all see snippets in a sea of business communications,” Lowder said. The defense attorneys said it wasn’t unusual for their clients to receive hundreds of emails a day, and they will work to show the jury the full picture.

Theodore Poulos, an attorney for Purdy, also told the jury that it was widely known that Outcome operated on a “weighted average” system, in which pharmaceutical companies paid for their ads to be shown on an average number of screens over a period of time. That meant the ads might have been shown on fewer screens one month but more the next, averaging out, over time to the amount agreed upon between Outcome and the company.

“The accountants and the auditors blessed this weighted average approach,” Poulos said.

After opening arguments, former executive Sameer Kazi took the stand as a witness, and was expected to continue testifying Tuesday.

Outcome and its former leaders have spent years embroiled in legal actions. Outcome settled a lawsuit by investors in early 2018, after investors alleged the company misled advertisers and investors about the company’s performance. At that point, Shah and Agarwal stepped down from daily operations of the company, and, six months later, resigned from their board positions.

In 2019, Outcome, as a company, agreed to pay $70 million to pharmaceutical companies to resolve a federal fraud investigation. As part of the agreement, Outcome admitted that from 2012 to 2017, former executives and employees “perpetrated a scheme to defraud its clients — most of which were pharmaceutical companies — by selling advertising inventory that it did not have,” the Justice Department said in a news release.

In March 2021, Outcome combined with company PatientPoint to create a new firm called PatientPoint Health Technologies.

©2023 Chicago Tribune. Visit chicagotribune.com. Distributed by Tribune Content Agency, LLC.