A federal judge on Thursday sentenced the former president and co-founder of the once-lauded Chicago startup Outcome Health to three years of confinement at a halfway house after she was convicted of fraud last year.
Shradha Agarwal, 38, was the second of a trio of former top Outcome executives to be sentenced this week for their roles in a scheme that prosecutors said defrauded pharmaceutical companies, investors and financial institutions out of $1 billion.
In handing down the unusual sentence, U.S. District Judge Thomas Durkin said Agarwal deserved to go to prison, but he was giving her a break because of a “ridiculous” policy of the U.S. Bureau of Prisons that non-U.S. citizens like Agarwal cannot go to a prison camp, where most first-time, nonviolent offenders are housed.
“I’m not going to put someone in a situation where they could be abused or extorted,” Durkin said about the conditions Agarwal could face in even a low-security prison setting. “In my mind, it’s ridiculous. It just makes no sense (that) the Bureau of Prisons has no flexibility.”
Agarwal also will be deported to India once she’s done serving her sentence, the judge noted.
The judge also spoke at length about the dichotomy between Agarwal’s criminal acts and an otherwise law-abiding life filled with acts of charity. He pointed to a 2015 email Agarwal wrote that was shown at trial in which she told a co-defendant she’d always dreamed of being famous not for being rich, but “for my work and the impact it had on the world.”
“That’s part of the tragedy of this case,” Durkin said. “She didn’t have to do this. She could have made her mark somewhere else. Unfortunately, she made it here, and the mark she’s made is a tarnished one.”
Before the sentence was announced, Agarwal stood at the lectern in a green dress and wept as she apologized for “all the ways in which I have failed.”
“I carry deep pain for the harm I have caused,” Agarwal said, stopping at one point as an attorney handed her a box of tissues. “I apologize to our customer, our lenders and investors. They trusted me and I failed them. I caused them great harm and I regret that.”
On Wednesday, the company’s former CEO and co-founder Rishi Shah was sentenced to 7½ years in prison for his role in the fraud. The company’s former chief operating officer and chief financial officer Brad Purdy was sentenced Thursday afternoon to 27 months in prison.
“We are very pleased Judge Durkin saw the differences between the defendants here, and gave due consideration to all the information he was provided about Brad Purdy in fashioning his sentence,” Purdy’s attorney, Ted Poulos, said in a written statement. “Brad is anxious to finally put this chapter behind him and move forward with his life and career.”
At its height, Outcome was one of most talked about companies in Chicago, with a reported valuation of more than $5 billion and more than 500 employees. Outcome 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, government prosecutors alleged that Shah, Agarwal and Purdy lied about how many doctors’ offices had screens and tablets running their content. The three young leaders then used those false numbers to overcharge pharmaceutical companies for ads, and inflated revenue figures used to raise money from investors and secure loans, prosecutors said.
It all began to crumble when a former Outcome analyst contacted the Wall Street Journal, which published a story in 2017 detailing the alleged problems at the company. Investors sued, and Shah and Agarwal stepped down. The company agreed in 2019 to pay $70 million to pharmaceutical companies to resolve a federal fraud investigation. The criminal fraud trial last year focused on Outcome’s three top executives as individuals.
Before Agarwal’s sentencing hearing Wednesday, government prosecutors had asked Judge Durkin to sentence her to 10 years in prison, saying in a memo that Agarwal “helped kick-start the fraud at Outcome Health and became its second-largest beneficiary.” Government prosecutors said that she was “less culpable” in the scheme than the CEO but “knew exactly what Shah set out to do and she fervently supported it.”
Prosecutors altered their request to 70 months in prison at Thursday’s hearing in accordance with the finalized sentencing guidelines, which were 70 to 87 months.
Agarwal’s lawyers had argued for a lighter sentence, writing in a court document, “For the majority of the scheme, which the Indictment alleges ran from 2011 to 2017, Shradha was outside of the two departments (sales and membership) that could have direct insight into the ongoing fraud.”
Her attorneys argued that she was “left in the dark” on many issues, because of deteriorating communication between her and Shah following the breakup of their romantic relationship.
Agarwal’s lawyers also submitted to the judge declarations from experts, before her sentencing, showing that because Agarwal is not a U.S. citizen, she could face harsher penalties, in some ways, than Shah and Purdy. She could be deported when her sentence concludes, would not be eligible for certain programs that could reduce her time in prison and would not be eligible for a minimum security prison, according to documents submitted to the court.
More than 70 family members, friends, local business leaders and investors wrote to the judge on Agarwal’s behalf before sentencing. About two dozen of them were in Durkin’s courtroom Thursday to support her.
Chicago-based education technology entrepreneur Karan Goel wrote that, as an Outcome investor, “the loss I suffered represented a meaningful portion of my net worth,” but Goel requested leniency for Agarwal.
“I say this as a victim of what transpired, but also as someone who believes in forgiveness,” Goel wrote. “The Shradha I knew was always kind, thoughtful, responsive and helpful to others.”
During the trial, defense attorneys blamed a fourth former Outcome employee, Ashik Desai, for the fraud. Desai pleaded guilty to one count of wire fraud before the trial, and he testified that he falsified screenshots and return-on-investment reports without his bosses’ knowledge. Ultimately, the jury sided with government prosecutors who said Desai did not act alone and was not the mastermind behind the fraud.
Desai could get a reduced prison sentence for testifying at the trial last year, as part of an agreement with the government. Desai is scheduled to be sentenced in September.
Two other former 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.
Agarwal, Shah 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.
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