CHICAGO (CN) — Rishi Shah, co-founder of pharmaceutical advertising company Outcome Health and former darling of Chicago's finance tech scene, received a 7 1/2-year sentence in federal court Wednesday following a two-day sentencing hearing. Jurors convicted Shah on multiple fraud counts last year alongside fellow ex-tech execs Shradha Agarwal and Brad Purdy.
U.S. District Judge Thomas Durkin, who handed down the sentence, further ordered that Shah serve three years of supervised release after he gets out of prison. The Barack Obama-appointee's cumulative decadelong sentence was nevertheless more lenient than the 15 years sought by the prosecution, which defense attorneys called "absurd."
"A sentence of that sort would be a travesty, in our view," one of Shah's attorneys, William Burck, told the court.
Durkin said Shah's lack of a criminal history, love of his young son and other factors all counted in his favor. However, the judge also scolded Shah for being "driven by greed" and "want[ing] to be a big shot." Federal prosecutor Kyle Hankey similarly accused Shah of greed on Wednesday, calling him the "most culpable defendant" of the trio and the main organizer of the fraud scheme.
"He was able to finance the growth of his company through the fraud," Hankey said.
Shah and Agarwal founded Outcome Health as ContextMedia LLC in Chicago in 2006, and the pair became the company's CEO and president respectively. Purdy later became Outcome's CFO. The company ran advertisements for different medications on TV screens and tablets in doctor's offices, in exchange for a fee from the pharma companies whose products were being advertised. The company proved profitable; by 2017 one evaluation claimed Outcome was worth over $5 billion, and Forbes estimated the then 31-year-old Shah's own net worth at $3.6 billion.
The same year, the company received $500 million from investors including Goldman Sachs, Google affiliate CapitalG and the Pritzker Group, a venture capital firm co-founded by billionaire Democratic Illinois Governor J. B. Pritzker and his brother Tony Pritzker.
But in October 2017 a Wall Street Journal article called out potential fraud at the company, in turn attracting the attention of federal prosecutors. Two years later, U.S. attorneys indicted Shah, Agarwal and Purdy, alongside Outcome Health's former vice president of sales, Ashik Desai, for facilitating a nearly $1 billion scam on the company's investors, lenders and clients from 2011 to 2017. Shah and his co-defendants relinquished control of Outcome Health in early 2018, but as far as the government was concerned, the damage had already been done.
Prosecutors said in their 2019 indictment that Outcome Health underdelivered on its advertising promises to clients but still charged them full price, then cooked its books to hide the discrepancy from auditors.
"It was … part of the scheme that despite the under-delivery on advertising campaigns, Shah, Agarwal, Purdy, Desai and others working at their direction caused monthly affidavits to be sent to clients that falsely represented that Outcome had performed its contractual obligations by running advertisements on the contracted number of screens and offices," the 2019 indictment states.
Desai entered into a guilty plea deal with the government a month after the indictment came down, but Shah, Agarwal and Purdy took their case to trial in January 2023. They attempted to lay blame for the fraud scheme at Desai's feet, as the former VP admitted on the stand that he falsified financial reports without Shah, Agarwal or Purdy's knowledge.
"Ashik Desai committed a brazen fraud," Shah's attorney John Hueston of the California law firm Hueston Hennigan said when the trial began, arguing Desai had conned the trio of defendants as well as Outcome's clients.
After 10 weeks of trial, however, jurors found Shah guilty on 19 fraud counts, Agarwal guilty on 15 counts and Purdy guilty on 13 counts. The jury deliberated for about two days before reaching the verdict in April 2023.
"This trial is about ambition, greed and fraud… it's about lies to get money, and what it took to hide those lies," Hankey told jurors that January. "They sold advertising inventory that they didn't have to their clients. They billed their clients for advertising they didn't deliver."
Durkin subsequently denied the trio's motions for acquittal and a new trial following the verdict.
"This is not one of the extreme cases that warrants a new trial. After viewing the trial, carefully observing the testimony and demeanor of the witnesses, and thoroughly reviewing the extensive record, the court does not have strong doubt as to defendants’ guilt on the charged offenses," he wrote in a March 2024 order.
Attorneys spent two days in court this week arguing over the amount of loss Outcome Health's investors, lenders and clients suffered as a result of the defendants' fraud. Durkin noted at the start of Shah's nominal sentence hearing Tuesday that the "$1 billion fraud" figure often repeated by press and the Justice Department referred not to loss, but to the amount of debt and equity financing the defendants raised through the fraud.
"It's called a $1 billion fraud by the people who write about it, but it was $1 billion raised, not $1 billion lost," Durkin said.
The judge ultimately ruled prosecutors had not proven Outcome's investors suffered any loss relevant for sentencing guidelines — there was enough money left in the company even after the Wall Street Journal article exposed Outcome's fraud that investors could have made back their money.
"We're really in the make-believe world of what it would have been worth if [the investors] tried to liquidate it," Durkin said.
The judge also decided against including lender loss when determining the defendants' sentencing guidelines, but estimated Outcome's pharma clients had suffered a $23.3 million loss.
"Loss is when you lose money. These pharmaceutical companies lost money year after year," Durkin said Wednesday.
The judge agreed with Hankey that Shah's conduct, regardless of loss, had undermined confidence in the market system, harmed Outcome's employees and damaged the reputations of the businesspeople involved with it.
"These kinds of corporate fraud schemes have real impacts on people," Hankey said.
Shah's defense attorneys had pushed for home confinement rather than prison time, saying their client could still do good with his life. Shah's friend Kevin Smith, another self-professed entrepreneur, said the same thing when he advocated for Shah on Wednesday.
"The world is better with Rishi," Smith told the court.
Shah, when he spoke on his own behalf Wednesday, prayed for the court's leniency and said he "craved" an opportunity for redemption. He said he wanted to warn other young businesspeople not to make his mistakes.
"Both in my head and heart, I feel deeply responsible for what happened at Outcome Health," Shah said.
"I know the incredible potential this company had ... because of my failure as a leader, the company did not live up to its full potential," he added.
Shah stopped short of admitting guilt, however, and his attorney Richard Finneran said he plans to appeal both the 2023 verdict and Wednesday's sentence.
Agarwal and Purdy now face their own sentencing hearings in front of Durkin on Thursday.
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