Outcome Health’s chief executive was sent a whistleblower letter last year by a salesman accusing the company of committing “ongoing fraud” by misleading its customers about its services, allegations that the advertising startup told investors had no merit, according to documents filed in an investor lawsuit.
The claim was made in a letter dated Oct. 21, 2016, several months before investors, including funds run by a unit of Goldman Sachs Group Inc. GS, -0.67% and Google parent Alphabet Inc. GOOG, +0.14% GOOGL, +0.15% , invested nearly $500 million in Outcome at a valuation the Chicago startup said was $5.5 billion. According to court documents, the company told investors before the funding round that the letter had no merit. Outcome streams pharmaceutical advertising and educational clips to video screens it places in doctors’ offices.
The investors on Nov. 7 sued Outcome and its co-founders, CEO Rishi Shah and President Shradha Agarwal, in a New York state court alleging the executives knowingly provided them with false data and financial reports before the funding round earlier this year.
The investors separately sued a subsidiary of Outcome in Delaware seeking to temporarily freeze $225 million of the investment held by the subsidiary that was allocated as a cash distribution to the founders. In their lawsuit filed on Nov. 16, investors allege that Outcome manipulated third-party reports summarizing ad campaigns to make them appear to be more successful than they were. Outcome has called both lawsuits’ allegations baseless and the company and its founders have denied wrongdoing.
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