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Illinois pulls EDGE credit for spiraling company after investors (including Pritzker) are subpoenaed

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Rishi Shah, a 31-year-old college dropout, who co-founded a healthcare media company, became the richest Indian in America with a personal worth of $3.6 billion, for all of a few weeks. His fortune evaporated almost overnight amidst allegations that his company had fudged data and misled advertisers.

Shah’s Chicago-based Outcome Health delivers pharmaceutical advertising to patients on tablets and screens placed in physician’s offices. He became the 206th richest American in the Forbes 400 list after his company raised $500 million based on a valuation of $5 billion in May from Goldman Sachs, Google’s parent Alphabet and the Pritzker Group Venture Capital. […]

The Wall Street Journal alleged that the company exaggerated the number of screens installed in physician offices, inflated data on ad performance and manipulated third-party analyses showing the effectiveness of its ads.

Shah and Outcome Health are now being sued by investors, most of its premium advertisers have fled, the company has laid off a third of its workforce and abandoned its lease of a premium downtown Chicago building for its new headquarters.

* And the alleged scam apparently took the local venture capital world by surprise…

When asked about what surprised them this year, VCs pointed to Outcome Health’s difficulties. After raising more than $500 million in May, the company now faces allegations reported in a Wall Street Journal story this fall that they misled advertisers by manipulating data and inflating the performance of ads. As a result, some of Outcome’s investors are now suing the company for fraud, and in November, the company cut its staff by more than a third.

* And now…

The state has suspended a tax credit agreement with Outcome Health — worth an estimated $6.1 million over a decade — in the wake of allegations that the tech company misled investors and advertisers.

The agreement was part of the EDGE program, short for Economic Development for a Growing Economy, which provides tax breaks for companies that promise to create jobs in Illinois. Outcome Health entered into its EDGE agreement in November 2016, when it was still known as ContextMedia, with a requirement to add at least 175 new full-time jobs in 2017 and 2018. […]

In November, big-name investors sued the company, CEO Rishi Shah and President Shradha Agarwal, alleging fraud as the company secured $487.5 million in funding and rose to a valuation of about $5.5 billion.

The investors — including units of Goldman Sachs and Google and a fund co-founded by Illinois gubernatorial candidate J.B. Pritzker — have filed court documents indicating they have received subpoenas from the Justice Department.

“Anytime that a company gets into legal trouble, almost always when the Department of Justice opens an investigation, we just suspend them for safety precautions, simply protecting taxpayer money,” said Jacquelyn Reineke, a spokeswoman for the Illinois Department of Commerce and Economic Opportunity.

Outcome Health has not collected any of its credits yet, Reineke said.

What a complete mess.

…Adding… From a flack…

Hi, Rich.

I’m reaching out to request an important correction to your post “Illinois pulls EDGE credit for spiraling company after investors (including Pritzker) are subpoenaed.” My firm works with Outcome Health and there are a couple of issues I’m hoping we can clear up. Please let me know ASAP when these issues can be fixed.

This section is incorrect: “Most of its premium advertisers have fled”
Most of the company’s advertisers (including the largest) remain active. In addition, the provider network has been fully retained. Outcome Health is still the largest content network with over 95% of all content partners. Please delete this from the article.

Please also include Outcome Health’s statement, attributed to an Outcome Health spokesperson, that was included in the Chicago Tribune and Chicago Business Journal articles on the subject of the EDGE Tax Credit story:

“Outcome Health remains committed to improving healthcare outcomes for patients, creating technologies, and driving innovation in Chicago. The company is well-positioned for success with its customers, is signing-up new customers, and is committed to the ongoing expansion of its network of more than 145,000 devices at medical offices around the country.”

Thank you,

Jake Klein
Media Strategist
Goldin Solutions

posted by Rich Miller
Tuesday, Jan 2, 18 @ 4:36 pm

Comments

Some of the biggest of the big hitters apparently didn’t do their due diligence very well.

Comment by wordslinger Tuesday, Jan 2, 18 @ 4:56 pm
I am encouraged to know that I am right up there with the heavy hitters. Hate to admit that I have made more than my share of bad investments over the past 40 years - but they all looked good at the beginning.

Comment by illini Tuesday, Jan 2, 18 @ 5:11 pm
Timing is everything.

Comment by Langhorne Tuesday, Jan 2, 18 @ 5:16 pm
This concept of pharma advertising to nervous and unhappy people sitting in doctor’s office waiting rooms (a captive audience as it were) ever being a big money maker never made a ton of sense even before the allegations of data fudging came out and lawsuits started. It’s interesting how many supposed savvy investors were sucked in. But you can’t blame them for feeling defrauded by how it all went down. I hope it is true that Outcome Health has not collected any of its EDGE tax credits.

Comment by Responsa Tuesday, Jan 2, 18 @ 5:30 pm
due dilgence off…..campaign donation comment vs. scam fest.

Comment by Amalia Tuesday, Jan 2, 18 @ 6:14 pm
Illini, no one picks winners every time. Ask Warren Buffett.

AA can’t see what drew the money to this deal in the first place. The product is not unique, the business case is shaky as Responsa notes and what in the heck were they gonna do with all that dough?
Likely hire plenty of eye candy ala Big Pharma to “get a minute with the doctor,” if I’m guessing right, not to offend anyone.

Comment by Arthur Andersen Tuesday, Jan 2, 18 @ 6:15 pm
–Likely hire plenty of eye candy ala Big Pharma to “get a minute with the doctor,”–

Took a lot of swag over a lot of years to get all those docs to start writing scripts for oxy like handing out candy. That costs money.

Comment by Anonymous Tuesday, Jan 2, 18 @ 6:18 pm
They should audit all the EDGE deals. Starting with Rivian.

Comment by Seabass Tuesday, Jan 2, 18 @ 6:51 pm
JB isn’t even governor yet,and he’s on his way to prison… only in Illinois

Comment by Max Bayer Tuesday, Jan 2, 18 @ 8:35 pm
–JB isn’t even governor yet,and he’s on his way to prison… only in Illinois–

How in the world did you land there? Because of subpoenas? Do you think Goldman and google are going down to?

Comment by wordslinger Tuesday, Jan 2, 18 @ 9:07 pm
JB recommended that Outcome Health remove all the toilets in their downtown office for a quick property tax savings break.

Comment by Soapbox Derby Wednesday, Jan 3, 18 @ 9:49 am