Outcome Health Returns Fire in Investors Dispute -- WSJ
November 09 2017 - 03:02AM
Dow Jones News
By Rolfe Winkler
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (November 9, 2017).
Outcome Health on Wednesday fired back at investors suing the
prominent Chicago advertising startup, saying that their
accusations of fraud are baseless and that their effort to freeze
$225 million in funds controlled by the founders was unfair and
could financially damage the company.
On Tuesday, investors sued Outcome and its founders, Rishi Shah
and Shradha Agarwal, claiming the founders knowingly provided false
data and financial reports before a funding round earlier this
year. The investors, which include funds managed by a unit of
Goldman Sachs Group Inc. and Google parent Alphabet Inc., invested
$487.5 million beginning in March.
The investors say they are entitled to get their money back,
citing an October Wall Street Journal article that reported how
some Outcome employees had allegedly misled customers about its
advertising services. Outcome, which said it was valued at $5.5
billion by investors, puts video screens in doctors' offices and
streams pharmaceutical ads to them.
In New York Supreme Court in New York County on Wednesday, the
judge said she would review both sides' claims and plans to hear
further arguments on Monday.
Outcome and its founders denied wrongdoing in Wednesday's filing
and said there is no evidence that Mr. Shah or Ms. Agarwal engaged
in any misconduct.
Outcome's attorney, Michael Carlinsky of law firm Quinn Emanuel
Urquhart & Sullivan LLP, called investors "irresponsible" for
filing suit days after they were briefed by an independent counsel
hired by Outcome last month to investigate the claims that some
employees misled advertising customers.
According to Outcome's legal filing, the independent counsel,
former U.S. attorney Dan Webb, told investors during the briefing
that while his investigation remains ongoing, he had "'not come
across any evidence that senior management was involved' in any
misconduct or even possesses 'relevant information' regarding the
misconduct that may have occurred at Outcome Health."
In response to Wednesday's comments from Outcome, a Goldman
Sachs spokesman said, "We believe there is more than enough
evidence to support our case and we look forward to our chance to
present it to the court." A spokesman for Alphabet's CapitalG
didn't immediately respond to requests for comment.
Outcome's filing says Mr. Webb interviewed "approximately 17
Outcome Health employees" as part of his investigation. It does not
state whether he interviewed any former employees, including Sameer
Kazi, a former chief operating officer who the Journal reported in
October confronted Mr. Shah with concerns about business practices
earlier this year, people briefed on the discussion said.
Mr. Webb and Mr. Kazi didn't respond to requests for comment on
Wednesday. Mr. Kazi in a brief phone conversation this summer said
he was at the company "two weeks and three days" early this year
and declined to comment on his departure.
The investors have asked the court to freeze $225 million of the
total that had been placed in a separate account to pay the
founders a distribution. They allege Mr. Shah took steps to take
money out of the account and can't verify the total funds are
there.
The Outcome filing states that while the founders have the right
to take this money out per an agreement with investors, the funds
remain in the account for company use. "We have been completely
transparent with employees, customers and investors, and always
operated with complete integrity," the founders said in a
statement.
Outcome's legal filing says Mr. Shah and Ms. Agarwal "have
considered" injecting the money allocated for their distribution
back into Outcome. "Such an infusion of cash could avoid a
potential debt default and give the company breathing room to
regain its footing amid the recent turmoil, " the filing said.
Mr. Carlinsky, Outcome's attorney, added in an interview that
this was a "general" statement about a debt default. "We don't want
to give the lenders reason to seek to declare a potential default"
and that an infusion of cash back into the company would mollify
them.
A lawyer representing Outcome's creditors, Michael Stamer of
Akin Gump, didn't respond to a request for comment.
Write to Rolfe Winkler at rolfe.winkler@wsj.com
(END) Dow Jones Newswires
November 09, 2017 02:47 ET (07:47 GMT)
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