The Securities and Exchange commission charged the co-founders of failed fecal microbiome testing company uBiome with fraud. In a complaint filed on Thursday, the SEC alleged that co-founders Jessica Richman and Zachary Apte defrauded investors out of $60 million by lying about their startup’s performance.
Once valued at $600 million, uBiome has since shuttered after filing for bankruptcy in 2019.
The startup began selling direct-to-consumer poop-testing kits. But later on, it began to develop doctor-ordered tests to explore risk factors for conditions like IBS and Crohn’s Disease, which is where most of its legal troubles started.
The company allegedly tricked doctors into ordering unnecessary tests, and in some cases, billed patients multiple times for each test. After FBI agents raided uBiome’s offices in 2019, one patient told CNBC that a test he had gotten was billed to his insurance five times — at $2,970 per test.
UBiome reportedly tried to hide this by giving insurers backdated or misleading medical records that would support its claims, according to the complaint.
“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,” Erin Schneider, Director of the SEC’s San Francisco Regional Office, said in a news release. “Investors are entitled to know the material risks of the companies they are investing in, no matter how transformative those companies claim to be.”
The company launched the clinical tests shortly before uBiome raised its series B funding round. During its series B and series C rounds, uBiome raised more than $64 million, while Apte and Richman reportedly sold more than $12 million of their personal stock.
The SEC is seeking court orders that would bar Richman and Opte from serving as directors or officers of future companies. They would also be required to pay civil penalties and any ill-gotten gains from their business.
Both founders also face criminal charges, after a grand jury indicted them with conspiracy to commit securities fraud, conspiracy to commit healthcare fraud, and money laundering.
Between 2015 and 2019, uBiome reportedly submitted more than $300 million in reimbursement claims to insurers, and was paid more than $35 million, according to the indictment.
“This was the result of a very complex investigation conducted by the FBI and our federal and state partners,” FBI Special Agent in Charge Craig Fair said in a news release. “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.”