Former Outcome Health CEO Rishi Shah sentenced to 7 ½ years in prison for role in fraud

The former CEO and co-founder of Outcome Health — once a star of Chicago’s tech scene — was sentenced to 7 ½ years in prison on Wednesday, more than a year after he was found guilty of fraud.

Before sentencing Rishi Shah, U.S. District Judge Thomas Durkin told Shah the fraud was “not a single mistake or out-of-character impulsive moment.”

“A lot of this I believe was driven by greed … dreams of being a big shot,” Durkin said.

Government prosecutors had asked Durkin to give Shah 15 years in prison, calling him “the architect” of a $1 billion fraud. The U.S. Probation Office had recommended 8 years, according to a memo filed by Shah’s attorneys, and his attorneys had asked for home confinement.

Shah, 38, has already retained former acting U.S. Solicitor General Neal Katyal to appeal his conviction. Shah also plans to appeal his sentence.

Shah spoke to the judge before sentencing Wednesday saying he’s “deeply sorry” for those who trusted him with their money and careers.

“In my head and heart I feel tremendous responsibility for what happened at Outcome Health,” Shah said.

The sentencing Wednesday came about 14 months after a jury found Shah and two other former Outcome leaders — co-founder and former President Shradha Agarwal and former Chief Operating Officer and Chief Financial Officer Brad Purdy — guilty of fraud. The jury convicted Shah on 19 of 22 counts against him.

Agarwal and Purdy are also scheduled to be sentenced this week.

Shah told the judge Wednesday, “I have profound remorse for how my failures have harmed Shradha and Brad.”

Shah and his once-celebrated Chicago-based company, Outcome, had a meteoric rise and even more dramatic fall. The company, conceived while Shah was a student at Northwestern University, sold advertising to pharmaceutical companies, and ran those ads on TVs and tablets that Outcome installed in doctors’ offices and waiting rooms.

During the trial last year, government prosecutors alleged that Shah, Agarwal and Purdy lied about how many doctors’ offices had screens and tablets running their content. Prosecutors said they then used those false numbers to overcharge drug companies for ads, and inflated revenue figures used to raise money from investors and secure loans.

Outcome raised nearly $1 billion from lenders and high-profile investors. By 2017, Outcome had more than 500 workers and was one of the most talked-about tech companies in Chicago.

Shah, who owned 80% of Outcome, was named to the Forbes 400 ranking of richest Americans in 2017, with a net worth of $3.6 billion at the age of 31.

Outcome’s downfall, however, began when a former Outcome analyst contacted The Wall Street Journal, which ran an article in 2017 detailing the alleged problems at Outcome. The company lost business, investors sued and Shah and Agarwal stepped down. In 2019, Outcome, as a company, agreed to pay $70 million to pharmaceutical companies to resolve a federal fraud investigation, and Outcome settled with investors and lenders in 2018. The criminal fraud trial last year focused on Outcome’s three top executives as individuals.

During the trial, defense attorneys blamed the problems at Outcome on a fourth former Outcome employee, Ashik Desai. Desai pleaded guilty to one count of wire fraud before the trial, and he testified that he falsified screen shots and return-on-investment reports without his bosses’ knowledge. Ultimately, the jury didn’t buy that Desai was solely responsible for the fraud at Outcome.

As part of an agreement with the government, Desai could get a reduced prison sentence for testifying at the trial last year. Desai is scheduled to be sentenced in September.

Throughout the sentencing hearing Tuesday and Wednesday, Shah’s attorney Richard Finneran argued for a lighter sentence for the former CEO, saying that investors, lenders and clients didn’t lose nearly as much money as government prosecutors claimed.

“Yes, Outcome underdelivered its services and as a result overstated its financials — but Outcome was not a worthless company, like in many white collar cases,” Shah’s attorneys said in a sentencing memo. “As the Government itself acknowledges, nearly 80% of Outcome’s revenue was real and not overstated.”

Finneran also argued that Outcome’s institutional investors did not suffer an actual monetary loss, and, in fact, financially benefited from a 2018 settlement Outcome reached with investors. Durkin ultimately decided not to include any investor losses in his sentencing determination, partly because he said government prosecutors did not present enough evidence of those losses for sentencing purposes.

William Burck, also an attorney for Shah, told the judge Wednesday that Shah made mistakes in how he ran Outcome but wasn’t trying to rob people.

“This was not a person who had had 10, 20, 30 years of experience in business,” Burck said. “This was a person who was in his 20s trying to build something from scratch … and was growing fast, probably too fast for the capabilities he had and his colleagues had.”

More than 30 family members, friends and prominent business leaders also wrote letters to the judge supporting Shah before sentencing, with many lauding him for helping other budding Chicago entrepreneurs.

Mark Lawrence, CEO and co-founder of SpotHero, wrote to the judge that, “Rishi’s influence on the entrepreneurial community in Chicago and beyond has been profoundly positive. … His generosity, kindness and willingness to help others succeed have impacted all who have known him. He has helped shape the careers of countless entrepreneurs and has been instrumental in the growth of Chicago’s startup ecosystem.”

George Bousis, founder and CEO of Chicago-based company Raise, wrote of Shah that, “During the years he was active, I would say nobody in the city of Chicago did more than he did for the business community, for startups, for providing mentorship to entrepreneurs, and for the companies in which he invested his time and capital.”

Justin Ishbia, founder and managing partner of Chicago-based private equity firm Shore Capital Partners, wrote to the judge, that Shah is “a principled man who has done a tremendous amount of good for those around him, his community, and his industry.”

Throughout the trial, attorneys repeatedly focused on the line between the growing pains that startups often face, versus fraud.

When sentencing Shah, Durkin warned, “To anyone who’s listening, faking is fraud.”

“Entrepreneurs have to know when they have access to capital such as you did … you have to be accountable. You can’t scrimp on numbers. You can’t cheat on numbers.”

Shah, Agarwal and Purdy were supposed to be sentenced in fall 2023, but their sentencing hearings were repeatedly rescheduled as Shah and Agarwal argued that they weren’t able to hire their first choice of lawyers for the trial because too much of their money was frozen before the trial began.

Earlier this month, Durkin denied Shah and Agarwal’s motions for a new trial or dismissal of the indictment against them.

Two other Outcome employees, Kathryn Choi, a former senior analyst, and Oliver Han, a former analyst, also previously pleaded guilty to conspiracy to commit wire fraud. Choi and Han are scheduled to be sentenced in October.