SEC Charges Former Executives of Healthcare Advertising Firm with $1 Billion Fraud
Outcome Health, formerly named ContextMedia, offers their clients, which are primarily pharmaceutical companies, the opportunity to display the client’s ads on televisions and other devices in doctors’ offices. By doing so, the company, based in Chicago, Illinois, brings healthcare advertising content directly to patients and physicians at the point of care.1
The former executives have been charged with fraud by the SEC.
On November 25, the Securities and Exchange Commission amended a complaint to charge four former executives of Outcome Health with fraud in raising nearly a billion dollars by falsely portraying the company as overwhelmingly successful to investors, clients and auditors and for billing clients and obtaining revenue for ads the company never ran.2 The complaint alleges that the revenue reported in the company’s audited financial statement for 2015 was $14.3 million less than was reported, and for 2016 it was $30 million less than was reported.3 Investors were provided these false financial statements during a private offering where the company raised approximately $487 million.
The amended complaint also alleges that four former executives of Outcome Health knew that third-party studies were manipulated to conceal problems delivering ads and make the ads appear to be more effective than they actually were. Outcome gave investors approximately 28 return-on-investment (ROI) studies, at least 12 of which had been manipulated to provide the illusion that the ad campaigns had been successful.4
Outcome Health was the subject of an October 2017 article in the Wall Street Journal wherein the WSJ reported that the company, with a $5.5 billion valuation and investors from Goldman Sachs and Google’s parent, misled advertisers with manipulated information.5 An internal investigation resulted in the departure of several key company executives and a decline in the company’s revenues because of the scandal.
With investors assuming ownership of the company, it subsequently entered into a non-prosecution agreement with the U.S. Department of Justice (DOJ) that “resolved, with respect to the Company, the DOJ’s criminal investigation related to past misconduct by former employees.”6 The DOJ agreement recognized Outcome Health’s improvements to its internal controls and compliance. The agreement also outlines Outcome Health’s restitution, which included $65.5 million to its customers, with another $4.5 million in reserve for potential future claims that might arise.
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