Outcome Health, a fast-growing Chicago startup embroiled in a controversy around the performance of its ads, has been sued by its investors.
Funds managed by Google’s parent company Alphabet, Goldman Sachs, and Chicago’s Pritzker Group Venture Capital have sued Outcome and its founders for “knowingly providing false data and financial reports” before the funds invested $487 million into the company in March, according to the Wall Street Journal.
Last month the Wall Street Journal reported that several Outcome employees misled advertisers on the effectiveness of its ads by manipulating data. Outcome put three employees on paid leave as a result of the investigation, including Chief Growth Officer Ashik Desai.
The lawsuit, filed Tuesday in the New York State Supreme Court, said that had investors “known the truth about … Outcome Health, they never would have made their investments,” according to the Chicago Tribune.
The suit focuses on part of the investment, $225 million, which was placed in a separate subsidiary account to pay Outcome founders Rishi Shah and Shradha Agarwal a dividend, according to the Journal. Investors want that money frozen, the suit states, adding that Shah took steps to remove money from the account after the Journal published its initial report on Outcome’s ad issues. However, no money was ever taken out of the account, according to Outcome.
When reached for comment, an Outcome spokesman sent the following statement from Shah and Agarwal:
“We had the right to take out this money, and we did not. Instead, we decided to make the funds available for the company’s continued growth towards its mission. Goldman Sachs’s strong-arm Wall Street tactics are especially outrageous given these investors are well aware that both of us have always conducted ourselves with complete integrity and transparency. The investors’ money grab simply is inexcusable and disappointing.”
The lawsuit also breaks down how Outcome’s latest funding round came together in terms of how much investors contributed. Goldman invested $100 million, while Alphabet, Pritzker Group, Norwest Venture Partners, and Emerson Collective Investments—the investment arm of Laurene Powell Jobs—invested $50 million each.
Sanford Michelman, an attorney for Outcome, said in a statement that “there is no merit to the claims.”
“These funds are earmarked for operations and repaying lenders, yet these equity investors are improperly trying to put themselves in front of the company’s best interests,” the statement continues.
The lawsuit comes just days after several drug advertisers suspended their deals with Outcome as a result of the misleading ad allegations. Vivek Kundra, Outcome’s COO, left the company last week amid the turmoil. Shah said at the time that Kundra “made a family decision to move on” from the company.