A court has temporarily barred Outcome Health's founders from tapping $225 million they received from big-name investors, a ruling that company attorneys had warned could "further destabilize" the troubled company.
A Delaware Chancery Court judge last week granted the request by investors -- including units of Goldman Sachs and Google's parent Alphabet and a fund co-founded by J.B. Pritzker, a candidate for Illinois governor -- as part of their lawsuit filed Nov. 16 against Gravitas, an Outcome Holdings subsidiary that held the $225 million. The money was to be distributed to CEO Rishi Shah and President Shradha Agarwal, who control Gravitas, according to the complaint.
The Delaware suit followed one investors filed this month in New York against Chicago-based Outcome Health, Shah and Agarwal, alleging fraud as the company secured $487.5 million in funding this year and rose to a valuation of $5.5 billion. The New York suit asked the court to order that $225 million of those funds, set to be distributed to Shah and Agarwal, remain available. After a New York judge denied the request, the investors filed the Delaware suit, which asked the court to temporarily restrain Gravitas and its managers from moving the money.
Sanford Michelman, attorney for Outcome Health and Gravitas, said the judge's decision served to maintain the status quo until evidence can be reviewed. He also pointed out that Gravitas and Outcome Health are separate entities and the $225 million is not part of the company's operating funds. "The plaintiffs', I believe, very irresponsible actions are stifling the growth of the company because of their own misunderstandings," he said.
Outcome Health places screens in doctors' offices that run educational content about health topics for patients with advertisements from drug companies. The screens and educational content are free to doctors. Outcome Health makes money from the ads.
Since The Wall Street Journal reported in October that Outcome Health employees had misled advertisers about the company's performance, hospitals and advertisers have backed away from the fast-growing company, and investors have filed court documents indicating they received subpoenas from the Justice Department. Last week, more than one-third of Outcome Health's roughly 535 employees took a buyout.
Spokesmen from Goldman, Pritzker Group, Venture Capital and Alphabet's CapitalG declined to comment.
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