Investors Sue Company That Warned It Might Commit Fraud For Fraud

Goldman Sachs’ due diligence did not include watching publicly-available Vimeo interviews of the guy it was investing nine figures with.
(Getty Images)

So, who's fired? (Getty Images)

Goldman Sachs is suing a company its hedge fund invested a cool $100 million—and convinced the likes of the Pritzker Group, Hamilton Lane and Balyasny Asset Management to pony up a further $400 million—in. The problem? Goldman says the Outcome Health, which in spite of its name is actually an advertising company, installing screens in doctors’ offices to beam in pharmaceutical ads, committed all manner of fraud, lying about its financial performance and also charging companies for ads on screens it didn’t have. If only there was a way they could have foreseen this….

That growth was powered in part by a unique strategy to solve what Mr. Shah described as its “chicken-egg” problem, a strategy he explained came with a key risk….

Mr. Shah “negotiated upfront payments” on advertising deals “to have money in the bank and actually go and do these installations and deliver 200 screens, deliver 500 screens, 2,000 screens, that’s how we kept growing.” In a 2016 interview also available online, Mr. Shah described the strategy as bringing “from the future what we need to fuel the future in the present, which is a concept we’ve recycled.”

The risk of that strategy, which Mr. Shah described in both the 2012 and 2016 interviews, was that Outcome needed to execute with “military” precision. “It required you to sell an idea to both” doctors and advertisers, he said in 2016, “and then you couldn’t mistime it, because you know, that would be fraud, right? If you sell something that doesn’t exist.

Goldman & co., it should be noted, anted up with Outcome in May 2017.

Why Goldman and Pritzker Sank Millions Into a Startup Before Suing It for Fraud [WSJ]