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uBiome Co-Founders Charged With Federal Securities, Health Care Fraud Conspiracies | USAO-NDCA

New IdentityTheft Scam

SAN FRANCISCO – A federal grand jury handed down a 33-page indictment today charging Zachary Schulz Apte and Jessica Sunshine Richman with multiple federal crimes including conspiracy to commit securities fraud, conspiracy to commit health care fraud, money laundering, and related offenses in connection with alleged schemes to defraud health insurance providers and investors raise to capital for now-bankrupt microbiome testing company uBiome.  

The announcement was made by Acting U.S. Attorney Stephanie M. Hinds, Federal Bureau of Investigation Special Agent in Charge Craig D. Fair, U.S. Postal Inspection Service (USPIS) Inspector in Charge Rafael Nuñez; U.S. Department of Health and Human Services Office of the Inspector General (HHS-OIG) Special Agent in Charge Steven J. Ryan; Defense Criminal Investigative Service (DCIS) Western Field Office Special Agent in Charge Bryan D. Denny; U.S. Department of Veterans Affairs, Office of Inspector General (VA OIG) Special Agent in Charge is Jason P. Root; Amtrak Office of the Inspector General Special Agent In Charge, Western Field Office, Thomas M. Hopkins; Office of Personnel Management Office of Inspector General (OPM-OIG) Deputy Inspector General Performing the Duties of the Inspector General Norbert E. Vint.

According to the indictment, Apte, 36, and Richman, 46, both of whom resided in San Francisco at relevant times, co-founded uBiome in October 2012.  Initially, uBiome offered a direct-to-consumer service, called “Gut Explorer,” which allowed an individual to submit a fecal sample that uBiome would analyze in its laboratory and produce a report comparing the customer’s microbiome to the microbiomes of others who had submitted fecal samples to uBiome, all for less than $100.  The indictment describes how the defendants eventually expanded uBiome’s business model to include development and marketing of “clinical” tests regarding the gut and vaginal microbiomes, which tests would ostensibly be used by medical professionals to make medical decisions and as to which uBiome would seek reimbursement from health insurance providers in amounts up to nearly $3,000.  The indictment alleges that Apte’s and Richman’s efforts to have uBiome develop clinical tests that could be billed to insurance companies were intended to attract large-scale venture capital investment.  By late 2015, shortly before it raised millions of dollars in its “Series B” fundraising round, uBiome began to market a “clinical” version of a test.  Thereafter, the indictment alleges that Apte and Richman caused uBiome to employ various methods to secure health care provider orders for its clinical gut test and clinical vaginal test, including by having its Chief Medical Officer review test requests from customers and endeavoring to build a network of health care providers external to uBiome.

“The innovation that emerges from our Bay Area companies is unparalleled,” said Acting U.S. Attorney Hinds, “but all innovation must exist within the boundaries of the law. Today’s indictment alleges that in their efforts to move fast to drive business and investment capital to their microbiome start up, defendants turned a blind eye to compliance and pursued at all costs a path designed to bring the greatest investment in their company. The indictment alleges defendants bilked insurance providers with fraudulent reimbursement requests, a practice that inevitably would result in higher premiums for us all.  Further, defendants cashed out on the investment that flowed into the company to benefit themselves. Today’s indictment is a cautionary tale about the importance of robust compliance programs rather than lip service, and the importance of honesty with investors.”

“This was the result of a very complex investigation conducted by the FBI and our federal and state partners,” said FBI Special Agent in Charge Fair. “This indictment illustrates that the heavily regulated healthcare industry does not lend itself to a ‘move fast and break things’ approach, but rather to an approach of compliance and accountability.”

“The United States Postal Inspection Service has a long history of successfully investigating complex fraud cases,” said USPIS Inspector in Charge Nuñez. “Anyone who engages in deceptive practices should know they will not go undetected and will be held accountable.  The collaborative investigative work on this case conducted by Postal Inspectors, our law enforcement partners, and the United States Attorney’s Office illustrates our efforts to protect American consumers and businesses.” 

“The announced indictment is a crucial step forward in holding accountable those who, among other things, allegedly engaged in fraudulent schemes against TRICARE, the Department of Defense’s healthcare system for military members and their families,” said DCIS Special Agent in Charge Denny. “DCIS will continue to work with its law enforcement partners to see this matter through in order to protect the best interests of the Department of Defense and the American public.”

“This indictment demonstrates the VA OIG’s unwavering commitment to safeguard the integrity of the programs that support our nation’s veterans and their families” said VA OIG Special Agent in Charge Root.

“We are very proud of this well-coordinated, joint effort—a true partnership between the U.S. Attorney’s Office and multiple investigative agencies like Amtrak’s Office of Inspector General,” said Amtrak OIG Special Agent in Charge Hopkins. “Because of this joint effort and efforts like it, we continue to achieve success across the country in bringing justice to those who target Amtrak’s health care plan, its employees and their dependents.”

“The OPM OIG is committed to investigating unscrupulous providers that take advantage of the system and defraud the American taxpayer,” said OPM OIG Deputy Inspector General Vint.

The indictment describes how the defendants ultimately adopted several fraudulent practices with respect to its clinical tests.  Specifically, according to the indictment, the defendants developed, implemented, and oversaw practices designed to deceive approving health care providers and reimbursing insurance providers regarding tests that were not validated and not medically necessary.  Further, the indictment alleges the defendants falsified documents and lied about and concealed material facts when insurance providers asked questions to which truthful answers would reveal the fraudulent nature of uBiome’s billing model.  The indictment alleges such practices included (1) fraudulently submitting reimbursement claims for re-tests or re-sequencings of archived samples (referred to internally at uBiome as “upgrades”); (2) utilizing a captive network of doctors and other health care providers who fraudulently were given partial and misleading information about the test requests they were reviewing; (3) fraudulently submitting reimbursement claims with respect to tests that had not been validated under applicable federal standards and/or for which patient test results had not yet been released; (4) manipulating dates of service to conceal uBiome’s actual testing and marketing practices from insurance providers, and to maximize billings; (5) fraudulently not charging patients for patient responsibility required by insurers, and instead, in some cases, incentivizing them with gift cards, and then making false or misleading statements about, or concealing, those practices from insurance providers; and (6) falsifying documents, using the identity of doctors and other health care providers without their knowledge or authorization, and lying to insurance providers in response to requests for information, overpayment notifications, requests for recoupment of billings, denials of reimbursement requests, or audits investigating uBiome’s billing practices.  The indictment alleges that, between 2015 and 2019, uBiome submitted more than $300 million in reimbursement claims to private and public health insurers.  Of these reimbursement claims, uBiome was paid more than $35 million.

The indictment also includes allegations that defendants oversaw an effort to deceive and mislead investors about various aspects of uBiome’s business during its Series B and Series C fundraising rounds, which occurred primarily in 2016 and 2018, respectively.  Specifically, the indictment alleges defendant misled investors about (1) the success of uBiome’s business model in terms of revenues and reimbursement rates; (2) the threats to future revenues represented by uBiome’s failure to collect patient responsibility, marketing of upgrades, and reliance a captive group of health care providers to generate orders; and (3) the lack of clinical utility and acceptance in the medical community of uBiome’s tests.  The indictment alleges that the defendants failed to disclose to investors, and otherwise concealed from investors, that “not only were insurance providers’ questions about and responses to uBiome’s billing practices calling uBiome’s entire business model into question, but [defendants] had had to falsify documents and lie to insurance providers in order to attempt to keep them at bay.”  The indictment alleges that Apte and Richman induced investors to invest more than $64 million in uBiome stock during the Series B and Series C fundraising rounds and, furthermore, that Apte and Richman together sold investors more than $12 million of their personal uBiome during those rounds.

In addition to these charges, the indictment contains allegations that defendants engaged in aggravated identity theft and engaging in transactions with the proceeds of the specified unlawful activities of wire fraud and securities fraud (i.e., money laundering).  With respect to the identity theft charges, the indictment provides examples of how defendants used the names and personal information of various health care providers to create documents for submission to health insurance companies  with respect to certain uBiome customers during and in relation to the conspiracy and scheme to defraud those insurers.  With respect to money laundering, the indictment alleges Apte used more than $10,000 of proceeds of the scheme to defraud investors to make a $2,250,000 payment ostensibly to a law firm for a retainer and to deposit $500,000 into a bank account.  Also with respect to money laundering, the indictment alleges Richman used more than $10,000 of proceeds of the scheme to defraud investors to make payments related to real property in Washington State and Florida, to purchase an annuity from a life insurance company, to pay a law firm $2,000,000 ostensibly for a legal retainer, and to transfer funds in the amount of $900,000 intended as partial payment for the purchase of a residence in south Florida.  

In sum, the defendants are charged with the following crimes and face the following maximum penalties:

Offense

Statute

Maximum Statutory Penalty (per count)

Conspiracy to Commit Health Care Fraud

(one count, each defendant)

 

18 U.S.C. § 1349

20 years

Health Care Fraud

(14 counts, each defendant)

 

18 U.S.C. § 1347

20 years

Aggravated Identity Theft and Aiding and Abetting

(six counts, each defendant)

 

18 U.S.C. § 1028A & 2

Two years, consecutive to underlying sentence

Conspiracy to Commit Wire Fraud and Securities Fraud

(one count, each defendant)

18 U.S.C. § 371

5 years

Wire Fraud and Aiding and Abetting

(10 counts, each defendant)

 

18 U.S.C. § 1343 & 2

20 years

Fraud in Connection with the Purchase and Sale of Securities

(nine counts, each defendant)

15 U.S.C. §§ 78j(b), 78ff;

17 C.F.R. § 240.10b-5;

18 U.S.C. § 2

20 years

Engaging in Monetary Transactions with Proceeds of Specified Unlawful Activity

(Apte, two counts; Richman, four counts)

18 U.S.C. § 1957

10 years

 

The court may order additional terms of supervised release, as well as additional monetary penalties and restitution.  However, any sentence following conviction would be imposed by the court only after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.

An indictment merely alleges that crimes have been committed, and defendants are presumed innocent until proven guilty beyond a reasonable doubt.  

The defendants’ initial federal court appearances have not yet been scheduled.   

The case is being prosecuted by the Special Prosecutions Section of the U.S. Attorney’s Office for the Northern District of California.  The prosecution is the result of an investigation by the FBI, USPIS, HHS-OIG, DCIS, VA-OIG, Amtrak-OIG; OPM-OIG; and the U.S. Department of Labor, Employee Benefits Security Administration, with assistance from the California Department of Justice Division of Medi-Cal Fraud & Elder Abuse and the California Department of Insurance.  The U.S. Attorney’s Office and all the federal law enforcement agencies also thank the San Francisco Regional Office of the Securities and Exchange Commission (SEC).  The SEC conducted a parallel investigation that was also announced today.

Source: on 2021-03-18 17:56:15

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