uBiome cofounders are in hot water after the SEC charged the pair with healthcare fraud conspiracies.

The company first was founded in 2012 and started with direct-to-consumer microbiome testing.

Now cofounders Zachary Schulz Apte and Jessica Sunshine Richman are being tried for a slew of charges, including conspiracy to commit securities fraud, conspiracy to commit healthcare fraud, money laundering and related offenses connected to alleged schemes to defraud health insurers and providers, according to a Department of Justice release.

The company, which filed for Chapter 11 bankruptcy in 2019, came under investigation by the FBI for its alleged fraudulent insurance billing practices. At the time, the FBI raided the headquarters and required all employees to hand over computers.

The SEC lawsuit claims that uBiome’s developed a clinical version of its microbiome test in order to attract venture dollars. The company landed $60 million in venture funding. The SEC claims these funds were fraudulently raised.

The SEC goes on to allege that after it began marketing this version of the test the company used a number of methods to prompt clinicians to order the tests.

Additionally, the indictment alleges that the cofounders developed and oversaw practices that deceived healthcare providers and insurance companies into ordering tests that were neither valid nor medically necessary.

“uBiome’s purported success in generating revenue, however, was a sham. It depended on duping doctors into ordering unnecessary tests and other improper practices that Richman and Apte directed and which, once discovered, led insurers to claw back their previous reimbursement payments to uBiome,” the court filing reads.

The defendants face seven counts of fraud that could incur up to 90 years in prison.

“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,” Acting U.S. Attorney Hinds said in a statement.

“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.”

WHY IT MATTERS

These allegations not only put uBiome’s cofounders on trial, but also set an example for all other companies in the space.

“This was the result of a very complex investigation conducted by the FBI and our federal and state partners,” FBI Special Agent in Charge Fair, said in a statement.

“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 LARGER TREND

Health tech companies have seen their fair share of legal troubles in the past few years. One of the most notable cases is Theranos. In 2018, Theranos founder Elizabeth Holmes was charged by the SEC with ‘massive fraud’. She and former Theranos president Ramesh “Sunny” Balwani were charged with raising over $700 million through exaggerated and fraudulent claims.

Recently acquired Outcome Health’s founders also face a number of legal battles. A criminal indictment in the Northern District of Illinois charges former CEO and cofounder Rishi Shah, former President and cofounder Shradha Agarwal, former CFO Brad Purd, and former EVP Ashik Desai, with an alleged $1 billion scheme to defraud clients. Currently, the former executives are awaiting trial.