FOfficials on Thursday accused two co-founders of uBiome, a microbiome startup that rose to prominence in Silicon Valley in 2018, for defrauding investors of $ 60 million.
The Securities and Exchange Commission complaint alleges that Jessica Richman, former CEO of uBiome, and Zachary Apte, its former scientific director, deceived investors by selling uBiome as a startup with a successful track record.
Filed in federal court in San Francisco, the complaint specifically accuses Richman and Apte of violating the anti-fraud provisions of federal securities laws. The agency is trying to bar both from serving as officers or directors in the future and forcing them to pay civil penalties and waive any profits from the company, which filed for bankruptcy in December 2019 following an FBI operation.
advertising
“We claim that Richman and Apte praised uBiome as a fast-growing and successful biotechnology pioneer, while hiding the fact that the company’s supposed success depended on fraud,” said Erin Schneider, director of the SEC’s regional office in San Francisco, in a statement.
Richman and Apte founded uBiome in 2012 as a citizen science project. In one of the first crowdfunding videos posted on the Indiegogo website, the two are seen encouraging volunteers to send stool samples in a quest to better understand the microbiome, which they call a “forgotten organ”. To assist them in the effort, uBiome sent volunteers a simple cotton swab kit – the rest was up to them.
advertising
In 2016, the company took an unfortunate leap towards telemedicine by renewing its kits, marking them as medical tools and announcing to potential customers that they and their doctors could use the uBiome kit to better understand disease risk. UBiome also said that their tests were covered by health insurance, which was not true. The allegations launched uBiome into the Silicon Valley spotlight: in 2016, Fast Company named it one of the 10 “most innovative companies in the world in healthcare. Venture firms, including 8VC and Andressen Horowitz, poured funds into the company, helping it obtain a $ 600 million valuation in 2018.
But things went sour in 2019, when in April, agents from the Federal Bureau of Investigation broke down the door of their San Francisco headquarters to carry out a search warrant, which CNBC said was part of an investigation into the company’s collection practices. uBiome filed for bankruptcy six months later and announced it would close.
According to the complaint, uBiome’s alleged success in generating revenue – which Richman and Apte praised investors – depended on deceiving doctors into ordering useless tests that would not bring any clinical benefit. Had these facts been discovered, insurers would have refused to reimburse the company for the kits. But Richman and Apte allegedly hid those practices from investors and insurers, and instructed uBiome employees to provide insurers with prior medical records, according to the complaint. These efforts were unsuccessful. After the FBI operation, uBiome stopped selling its clinical trials and filed for bankruptcy in October 2019.
“Investors have a right to know the material risks of the companies they are investing in, no matter how transformative these companies claim to be,” said Schneider.