San Francisco-based startup uBiome, which got plenty of attention in the last decade for its at-home fecal testing kits and trendy focus on gut health, is now the focus of a federal complaint that accuses the founders of defrauding investors and health insurers to the tune of $60 million.
uBiome was among 10 notable local startups that went belly-up in 2019, as SFist noted that pre-pandemic December, filing for bankruptcy in the wake of an FBI raid of its SF offices and revelations about a federal probe into its billing practices. Gone was the $600 million valuation the company had just a year earlier, with VC dollars from Andreessen Horowitz and others, and cofounders Jessica Richman and Zachary Apte went from biotech darlings to Silicon Valley pariahs in the style of Elizabeth Holmes.
Now, via the complaint filed Thursday by the Securities and Exchange Commission (SEC) in federal court on San Francisco, we learn some details of uBiome's alleged deceit — and it has to do with getting doctors to order their poop test kits and bill patients' insurance for something "not validated and not medically necessary."
"We allege that Richman and Apte touted uBiome as a successful and fast-growing biotech pioneer while hiding the fact that the company’s purported success depended on deceit,” said Erin Schneider, director of the SEC’s San Francisco regional office, in a statement. "Investors are entitled to know the material risks of the companies they are investing in, no matter how transformative those companies claim to be."
Before the company and the alleged scheme ultimately "unraveled" in 2019, under scrutiny by insurers and ultimately the FBI, Richman and Apte allegedly bent multiple rules and fabricated aspects of insurance claims in order to show steady growth in the company's revenues. This was done, in part, through a "doctor network" offered to users via their web portal, according to the complaint, with doctors directed to prescribe uBiome's poop tests based on online questionnaires, often without any personal relationship with patients — something required by insurers for reimbursement of claims.
The allegations include details of employees being directed to fraudulently backdate certain claims, and to assert that retests of samples were entirely new tests. Also, federal investigators suggest that Richman and Apte ignored warnings from counsel and employees that they needed to get the medical claims of their testing kits certified or else risk their being denied reimbursements later.
And the complaint accuses Richman and Apte of making multiple spurious claims to investors based on these insurance billings.
uBiome was founded in 2012 out of a crowdfunding campaign by Richman and Apte, who at the time were scientists in the California Institute for Quantitative Biosciences. What started as a simple, direct-to-consumer swab-test kit to enhance people's personal knowledge about their gut bacteria and health, expanded into telemedicine in 2016, with greater and greater claims being made about the medical utility of their tests. In 2016, the company also received accreditation from the College of American Pathologists, and the big VC money soon started pouring in.
In a statement to the Chronicle, Acting U.S. Attorney Stephanie Hinds says the co-founders "bilked insurance providers with fraudulent reimbursement requests, a practice that inevitably would result in higher premiums for us all."
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