The founders of the microbiome testing startup uBiome were indicted on multiple federal charges Thursday. According to SF Gate, Zachary Schulz Apte and Jessica Sunshine Richman are accused of "bilking their investors and health insurance providers" and have been charged with conspiracy to commit securities fraud, conspiracy to commit health care fraud, and money laundering.
From the SEC press release:
The SEC's complaint alleges that Richman, uBiome's CEO, and Apte, its Chief Scientific Officer, raised funds from investors – millions of dollars of which went to Richman and Apte – by painting a false picture of uBiome as a rapidly growing company, which Richman told investors was "inventing the microbiome industry" and making "products that improve people's lives." According to the complaint, Richman and Apte portrayed the company as having a strong track record of receiving health insurance reimbursement for its clinical tests, which purportedly could detect microorganisms and assist in diagnosing disease. The complaint alleges that these claims were false and misleading because uBiome's purported success in generating revenue depended on duping doctors into ordering unnecessary tests and other improper practices that Richman and Apte directed, which, if discovered, would have led to insurers refusing to reimburse uBiome. According to the complaint, Richman and Apte acted to conceal the improper practices from investors and insurers, including directing uBiome employees to provide insurers with backdated and misleading medical records to substantiate the company's prior claims for reimbursement. Ultimately, the complaint alleges, Richman and Apte's efforts to conceal the practices unraveled, which led to uBiome suspending its medical test business and entering bankruptcy. According to the complaint, Richman and Apte were each enriched by millions through selling their own uBiome shares during the fraudulent fundraising round.