uBiome Co-Founders Charged With Federal Securities, Health Care Fraud Conspiracies

Posted on 03/19/2021


A federal grand jury handed down a 33-page indictment on March 18, 2021 charging Zachary Schulz Apte (age 36) and Jessica Sunshine Richman (age 40) with multiple federal crimes including conspiracy to commit securities fraud, conspiracy to commit health care fraud, money laundering, and related offenses in connection with alleged schemes to defraud health insurance providers and investors raise to capital for now-bankrupt microbiome testing company uBiome.

According to the DOJ press release, “The indictment describes how the defendants eventually expanded uBiome’s business model to include development and marketing of “clinical” tests regarding the gut and vaginal microbiomes, which tests would ostensibly be used by medical professionals to make medical decisions and as to which uBiome would seek reimbursement from health insurance providers in amounts up to nearly $3,000. The indictment alleges that Apte’s and Richman’s efforts to have uBiome develop clinical tests that could be billed to insurance companies were intended to attract large-scale venture capital investment. By late 2015, shortly before it raised millions of dollars in its “Series B” fundraising round, uBiome began to market a “clinical” version of a test. Thereafter, the indictment alleges that Apte and Richman caused uBiome to employ various methods to secure health care provider orders for its clinical gut test and clinical vaginal test, including by having its Chief Medical Officer review test requests from customers and endeavoring to build a network of health care providers external to uBiome.”

In September 2018, microbiome start up uBiome, raised US$ 83 million in Series C financing. OS Fund led the round, with participation from 8VC, Y Combinator, Dentsu Ventures, and additional new and existing investors. Dentsu Ventures is the corporate venture capital fund of Dentsu. uBiome was founded in October 2012. Initially, uBiome offered a direct-to-consumer service, called “Gut Explorer,” which allowed an individual to submit a fecal sample that uBiome would analyze in its laboratory and produce a report comparing the customer’s microbiome to the microbiomes of others who had submitted fecal samples to uBiome, all for less than $100.

The DOJ adds, “The indictment describes how the defendants ultimately adopted several fraudulent practices with respect to its clinical tests. Specifically, according to the indictment, the defendants developed, implemented, and oversaw practices designed to deceive approving health care providers and reimbursing insurance providers regarding tests that were not validated and not medically necessary. Further, the indictment alleges the defendants falsified documents and lied about and concealed material facts when insurance providers asked questions to which truthful answers would reveal the fraudulent nature of uBiome’s billing model. The indictment alleges such practices included (1) fraudulently submitting reimbursement claims for re-tests or re-sequencings of archived samples (referred to internally at uBiome as “upgrades”); (2) utilizing a captive network of doctors and other health care providers who fraudulently were given partial and misleading information about the test requests they were reviewing; (3) fraudulently submitting reimbursement claims with respect to tests that had not been validated under applicable federal standards and/or for which patient test results had not yet been released; (4) manipulating dates of service to conceal uBiome’s actual testing and marketing practices from insurance providers, and to maximize billings; (5) fraudulently not charging patients for patient responsibility required by insurers, and instead, in some cases, incentivizing them with gift cards, and then making false or misleading statements about, or concealing, those practices from insurance providers; and (6) falsifying documents, using the identity of doctors and other health care providers without their knowledge or authorization, and lying to insurance providers in response to requests for information, overpayment notifications, requests for recoupment of billings, denials of reimbursement requests, or audits investigating uBiome’s billing practices. The indictment alleges that, between 2015 and 2019, uBiome submitted more than $300 million in reimbursement claims to private and public health insurers. Of these reimbursement claims, uBiome was paid more than $35 million.

The indictment also includes allegations that defendants oversaw an effort to deceive and mislead investors about various aspects of uBiome’s business during its Series B and Series C fundraising rounds, which occurred primarily in 2016 and 2018, respectively. Specifically, the indictment alleges defendant misled investors about (1) the success of uBiome’s business model in terms of revenues and reimbursement rates; (2) the threats to future revenues represented by uBiome’s failure to collect patient responsibility, marketing of upgrades, and reliance a captive group of health care providers to generate orders; and (3) the lack of clinical utility and acceptance in the medical community of uBiome’s tests. The indictment alleges that the defendants failed to disclose to investors, and otherwise concealed from investors, that “not only were insurance providers’ questions about and responses to uBiome’s billing practices calling uBiome’s entire business model into question, but [defendants] had had to falsify documents and lie to insurance providers in order to attempt to keep them at bay.” The indictment alleges that Apte and Richman induced investors to invest more than $64 million in uBiome stock during the Series B and Series C fundraising rounds and, furthermore, that Apte and Richman together sold investors more than $12 million of their personal uBiome during those rounds.”

LINK: https://www.justice.gov/usao-ndca/pr/ubiome-co-founders-charged-federal-securities-health-care-fraud-conspiracies

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