The co-founders of uBiome, a microbiome testing company that is now bankrupt, could face nearly 100 years in jail each for their role in multiple crimes related to health-care fraud.
Jessica Sunshine Richman, 46, and Zachary Schulz Apte, 36, are facing multiple charges following an indictment handed down by a federal grand jury in San Francisco. Among the federal crimes the pair are being charged with are money laundering, conspiracy to commit securities fraud and conspiracy to commit health care fraud.
All these offenses are related to an alleged scheme they created to defraud investors so they could raise capital for their company as well as to defraud various health insurance providers.
The pair both resided in San Francisco at the relevant times of the alleged offenses. They co-founded their company uBiome in October of 2012, according to the indictment.
At first, the company offered a service they called “Gut Explorer,” a service sold to consumers that allowed people to submit a sample of their fecal matter to the company. uBiome would then analyze the sample and report back, comparing the individual’s microbiome to other individuals who submitted samples to the company. The test cost less than $100.
Eventually, the co-founders expanded their practice. They developed and marketed “clinical” tests for vaginal and gut microbiomes that could be used by medical professionals to help them make health decisions for their patients. uBiome would eventually then seek reimbursement from the health insurance providers that amounted to as much as $3,000.
The indictment charges that the co-defendants created these clinical tests that could be billed to various insurance companies so they would be able to attract venture capital investors.
Late in 2015, right before uBiome raised a few million dollars in Series B funds, the company started to market the “clinical” version of their test. The co-defendants then used the company to secure orders from health-care providers for these two tests.
The co-founders had their chief medical officer review the requests for tests from various customers. They were seeking to build a full network of health-care providers that would operate outside of uBiome.
Among the charges of the indictment are submitted claims for reimbursement fraudulently, utilizing a network of providers who were given either misleading or false information regarding the tests, submitting claims for reimbursement fraudulently for tests that weren’t up to federal standards, manipulating the dates of their service to hide their actual marketing and testing practices and up their billings, not charging patients for their responsibility as per insurance providers’ instructions, and falsifying various documents.
Between the years of 2015 to 2019, the company submitted more than $300 million in claims for reimbursement to both public and private health insurance providers. The company was paid roughly $35 million from those submissions.
The co-defendants are also being charged with overseeing efforts to mislead and deceive potential investors during Series C and Series B fundraising rounds in 2016 and then again in 2018. They are charged with building up the company’s success with its business model, failing to report the threat to future revenue, and lacking clinical acceptance and utility in the medical field.
By doing so, they convinced people to invest $64 million in their company during the two rounds of fundraising. The two also sold in excess of $12 million of their own stock in the company to various investors.
They are also being charged with identity theft in addition to the securities and wire fraud. They fraudulently used personal information of some health-care providers to create false documents to submit to insurance companies.
The money laundering charges include a $2.25 million payment for a retainer at a law firm, and a $500,000 deposit into one of their bank accounts. They also spent another $2 million on a law firm retainer, purchased a house for $900,000 and used $10,000 to pay for properties in Florida and Washington state.
Both defendants have not yet received their scheduled court dates. If convicted of all crimes charged against them, they could face a maximum of close to 100 years in jail.