- The SEC accused uBiome cofounders Jessica Richman and Zachary Apte of fraud.
- Richman and Apte also face criminal charges related to the uBiome poop test startup.
- uBiome was a microbiome testing startup that closed in 2019 after an FBI attack.
- See more stories on the Insider business page.
Jessica Richman and Zachary Apte, the co-founders of the now closed microbiome company uBiome, are facing criminal and civil charges stemming from their efforts to turn uBiome into a poo-testing powerhouse.
The Securities and Exchange Commission alleged that Richman and Apte defrauded investors by $ 60 million, giving a false impression of how well the company was doing. Married co-founders also face criminal charges in a California federal court. They were indicted on Thursday on charges that included healthcare fraud and electronic fraud, as well as related conspiracy charges.
The SEC complaint alleged that Richman, 46, and Apte, 36, portrayed uBiome as receiving health insurance reimbursements for their tests, which tested poo samples for different conditions related to gut health. The complaint claimed that the co-founders made millions while uBiome raised money from investors.
“We claim that Richman and Apte praised uBiome as a fast-growing and successful biotechnology pioneer, while concealing the fact that the company’s supposed success depended on fraud,” said Erin Schneider, director of the SEC regional office. in San Francisco in a statement.
uBiome is the latest biotechnology company in Silicon Valley to be accused of deceiving investors. The now closed blood test company Theranos in 2018 made a deal with the SEC over allegations of “massive fraud”. Theranos founder Elizabeth Holmes has been charged with fraud and is due to appear in court this summer.
The microbiome testing company uBiome was investigated after an invasion by the FBI.
Hollis Johnson / Business Insider
uBiome changed from science project to startup supported by venture capital
uBiome was founded in 2012 with the promise of helping ordinary people to understand the bacteria that live inside and outside them, known as their microbiome.
The company went from a citizen science project to a startup supported by venture capital, obtaining US $ 105 million from investors and achieving a valuation of US $ 600 million.
Then the problems started. The FBI invaded the company in April 2019. By the end of June of that year, the company’s leadership and many of its board members were gone. In October 2019, the company said it was closing on a Chapter 7 bankruptcy filing.
The complaints paint a detailed picture of how uBiome got health insurers to cover their exams using what prosecutors say is a mistake.
The SEC complaint alleged that the founders of uBiome tricked doctors into asking for tests. uBiome built a portal that connected patients with doctors who could order the test. The complaint alleged that the network of doctors was designed to make doctors order the two medical tests offered by uBiome and prescribe them based on an online question form only.
How uBiome managed to get health insurers to pay for their tests
The civil suit also claimed that the company tricked doctors into retesting old samples. The criminal complaint alleged that uBiome worked to “reorder” the existing samples, telling consumers that there were more recent versions of the uBiome test. In doing so, the complaint alleged, uBiome could increase the number of billable claims, while using an existing sample.
When using this network of doctors, uBiome used to get reimbursements from insurers.
The criminal complaint alleged that uBiome tricked insurers into paying for tests that were not medically necessary or properly evaluated by medical regulators. In some cases, the company forged documents using the names of doctors and other health professionals without their knowledge, prosecutors said.
But insurers were taking uBiome.
According to the SEC’s complaint, at least 18 insurers sent letters to the company about their billing practices until April 2019. The criminal complaint alleged that Apte and Richman did not tell investors about the questions that insurers were asking.
Furthermore, the complaint alleged that Apte and Richman “had to falsify documents and lie to insurers to try to keep them at bay.”