Sturdy, managing partner at the venture fund Capital G, testified yesterday during the fraud trial of Outcome co-founders Rishi Shah and Shradha Agarwal, and former chief operating officer Brad Purdy.
The trio led one of Chicago’s most high-profile startups, which hit the big-time in spring 2017, when Google, Goldman Sachs, Pritzker Group Venture Capital and other funds invested $488 million in Outcome Health in a deal that valued the company at more than $5 billion. A Wall Street Journal story that seemingly came out of nowhere in October, revealing allegations that the company had been selling advertising to drug companies on more doctors-office TV screens than it had, as well as inflating the number of prescriptions that resulted from the ads.
Sturdy took the stand Thursday in federal court, testifying for the prosecution that during the summer of 2017 one of her associates had heard rumblings around Stanford University that a former Outcome Health employee was talking about “something shady happening around measurement and this person was also talking to a reporter.”
The description matches the testimony of David Ma, a former Outcome Health analyst, that he was getting his MBA at Stanford when he contacted a Wall Street Journal reporter.
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Sturdy testified that when she told Shah about the rumor, he told her it was a disgruntled employee and dismissed it. When she later saw Shah in Silicon Valley, what turned out to be just days before the fateful story was published, Sturdy said she asked him about it again and “he denied any wrongdoing. He said this was just disgruntled employees, unsubstantiated.”
Within days, the company was in full crisis mode, circling the wagons with investors, announcing moves aimed at shoring up credibility, such as hiring former U.S. Attorney Dan Webb to conduct an investigation and offering audits of all its advertising campaigns to customers.
Once the story broke, “customers largely went away,” she said. Two years later, Shah, Agarwal and Purdy were charged with fraud.
The case, which began eight weeks ago, is now drawing to a close. It could go to jurors next week, unless Shah decides to testify.