- The Securities and Exchange Commission (SEC) has charged Jessica Richman and Zachary Apte, co-founders of uBiome, a private medical testing company, with defrauding investors out of $60 million.
- Richman and Apte portrayed uBiome as a successful start-up with a proven business model and strong growth prospects, but its income depended on improper testing practices.
- "The company's purported success depended on deceit," Erin Schneider, director of the SEC's San Francisco regional office, said.
According to the SEC, Richman, uBiome's CEO, and Apte, its chief scientific officer, raised millions of dollars from investors, much of which went to Richman and Apte, by falsely portraying uBiome as rapidly growing.
Richman told investors the company was "inventing the microbiome industry" and making "products that improve people's lives."
Richman and Apte also said the company had a strong track record of receiving health insurance reimbursement for its clinical tests, which they said could detect microorganisms and assist in diagnosing disease.
These claims were false and misleading, the SEC said, because uBiome's revenue depended on duping doctors into ordering unnecessary tests and other practices that, if discovered, would have led to insurers refusing to reimburse the company.
The executives concealed the improper practices from investors and insurers, in part by directing uBiome employees to provide insurers with backdated and misleading medical records to substantiate the company's prior claims for reimbursement.
But the efforts to conceal the practices unraveled, the SEC said, which led uBiome to suspend its medical test business and enter bankruptcy.
"Richman and Apte were each enriched by millions through selling their own uBiome shares during the fraudulent fundraising round," the complaint said.
The SEC charged the executives under antifraud provisions of federal securities laws and is seeking court orders, including officer and director bars, to prevent them from engaging in future fraud. The SEC is also pursuing disgorgement of their ill-gotten gains and payment of civil penalties.
In a parallel action, the U.S. Attorney's Office for the Northern District of California has opened a criminal investigation of Richman and Apte.