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Startup sold DNA kits to test poop. Prosecutors say it’s a fraud
(Bloomberg) – The founders of the medical testing company uBiome Inc. have been criminally accused of $ 60 million fraud in an alleged scheme that looks like a smaller, low-profile version of the spectacular collapse of Theranos Inc. Offering products that allowed consumers and patients to analyze the DNA of their own microbiomes from fecal samples, uBiome filed for bankruptcy in September 2019, about four months after the FBI started investing in its billing practices . Among its creditors were high-profile venture capital firms 8VC and Andreessen Horowitz. Now, their former chief executives, Jessica Richman, 46, and Zachary Apte, 36, face charges of fraud in securities and health plans that could send them to prison for 20 years, along with a lawsuit from the Securities and Exchange Commission. United States Securities. The cases echo the criminal charges pending against Theranos Inc. founder Elizabeth Holmes and her ex-boyfriend and ex-president of Theranos, Ramesh “Sunny” Balwani. There is an important difference: While Holmes and Balwani are on trial to defend themselves, prosecutors say Richman and Apte are fugitives. “The defendants’ first appearances in federal court have not yet been scheduled,” the US attorney’s office in San Francisco said in a statement on Thursday. , Richman and Apte worked together and were romantically involved – causing them to get married in 2019, according to the SEC. In another parallel, the two groups of defendants are charged with telling investors that their companies could perform reliable medical tests when, according to prosecutors, they could not. Ultimately, however, the alleged Theranos fraud was on a much larger scale: Richman and Apte’s startup was valued at $ 600 million in a fundraising series, compared to $ 9 billion for Theranos at its peak . The spectacular rise and fall of Elizabeth Holmes and TheranosRichman and Apte “painted a false image of uBiome as a fast-growing company with a strong track record of reliable revenue through health insurance reimbursements for its tests,” the SEC said in its complaint. . “UBiome’s supposed success in generating revenue, however, was a scam.” Initially, uBiome’s “Gut Explorer” test was offered to carry out the genetic sequencing of faecal samples and was marketed as a way to gain a better understanding of what was happening in someone’s gut, according to the prosecution. In 2014, Richman and Apte concluded that the company could not generate enough revenue to attract venture capitalists, so they turned to clinical marketing tests used to make medical decisions, according to the government. Ubiome submitted health insurance claims for its tests, finally marketed as “SmartGut”, to private insurers that provide coverage to Medicare beneficiaries, as well as health plans sponsored by the private sector employer, according to the prosecution. Among other practices, Richman and Apte deceived healthcare providers and insurers by submitting fraudulent claims for reimbursement tests, relying on a “captive network” of healthcare providers to whom they gave partial and misleading information and manipulating service dates to hide uBiome’s real testing and marketing practices, prosecutors said. The company’s founders relied on the 2015 to 2019 scheme to sell uBiome’s shares and debt to pay for operations and get rich, prosecutors said. The prosecution describes a series of investment rounds by several funds not identified by name. Read more: uBiome Estate donating 40k Covid-19 test kits to 8VC based in HospitalSan Francisco and Andreessen Horowitz in Menlo Park, California, with 22% and 10% participation in uBiome, respectively, show court documents.8 VC led an initial $ 17 million fundraising round and participated with 10 other investment firms in a subsequent $ 83 million round, while Andreessen Horowitz participated in another initial $ 4.5 million round, according to with the market data provider PitchBook. Y Combinator, based in Mountain View, California, and Tokyo-based Dentsu Ventures are among other uBiome investors listed by PitchBook. “We are grateful to the authorities and will continue to cooperate fully with them,” said 8VC in a statement. “We cannot comment further on an ongoing case.” Y Combinator declined to comment, while Andreessen Horowitz and Dentsu Ventures did not respond to requests for comment. Richman and Apte did not tell investors that the insurer’s questions about uBiome’s billing practices called it “the entire business model of the company in question”, but the founders “had to falsify documents and lie to insurers to try to keep it them away, “according to the prosecution. Richman and Apte could not be reached for comment. Spokesmen for the US attorney’s office and the San Francisco FBI office did not immediately respond to requests for comment. The criminal case is US v. Apte, 21-cr-0116, US District Court, Northern California District (San Francisco). (An earlier version of this story corrected the participation of 8VC and Andreessen Horowitz in fundraising) For more articles like this, visit us at bloomberg.comSubscribe now to stay on top of the most trusted business news source. © 2021 Bloomberg LP