uBiome; Yutong Yuan/Business Insider
- The SEC has charged uBiome cofounders Jessica Richman and Zachary Apte with fraud.
- Richman and Apte also face criminal charges related to poop-testing startup uBiome.
- uBiome was a microbiome testing startup that shut down in 2019 after an FBI raid.
- See more stories on Insider's business page.
Jessica Richman and Zachary Apte, the cofounders of now-shuttered microbiome company uBiome, are facing criminal and civil charges stemming from their efforts to build uBiome into a poop-testing powerhouse.
The US Securities and Exchange Commission alleges that Richman and Apte defrauded investors out of $60 million by giving a false impression of how well the company was doing. The married cofounders are also facing criminal charges in federal court in California. They were indicted on Thursday on charges including healthcare fraud and wire fraud, as well as related conspiracy charges.
The SEC complaint alleges that Richman, 46, and Apte, 36, portrayed uBiome as receiving health insurance reimbursements for its tests, which tested poop samples for different conditions related to gut health. The complaint alleges the cofounders made millions as uBiome raised money from investors.
"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 statement.
UBiome is the latest Silicon Valley biotech to be accused of tricking investors. Now-shuttered blood testing company Theranos in 2018 settled with the SEC over allegations of "massive fraud." Theranos founder Elizabeth Holmes faces criminal fraud charges and is expected to appear in court this summer.
uBiome was founded in 2012 on the promise of helping ordinary people understand the bacteria living in and on them, known as their microbiome.
The company morphed from citizen science project to venture-backed startup, taking in $105 million from investors and reaching a valuation of $600 million.
Then the troubles began. The FBI raided the company in April 2019. By the end of June that year, the company's top leadership and many of its board members had departed. In October 2019, the company said it was shutting down in a Chapter 7 bankruptcy.
The complaints paint a detailed picture of how uBiome got health insurance companies to cover its tests, using what prosecutors say was deception.
The SEC complaint alleges that the uBiome founders duped doctors into ordering tests. To do that, uBiome built out a portal that connected patients with doctors who could order the test. The complaint alleges the network of doctors was designed to get doctors to order the two medical tests uBiome offered, prescribing based only on an online question form.
The civil complaint also alleges the company fooled doctors into retesting old samples. The criminal complaint alleges that uBiome worked to "re-sequence" existing samples, telling consumers that there had been newer versions of uBiome's test. By doing so, the complaint alleges, uBiome could increase the number of billable claims, all while using an existing sample.
By using this network of doctors, uBiome was often able to get reimbursements from insurers.
According to the criminal complaint, uBiome tricked insurers into paying for tests that weren't medically necessary or properly vetted by medical regulators. In some cases, the company faked documents by using the names of doctors and other healthcare workers without their knowledge, prosecutors said.
But the insurers were catching on to uBiome.
According to the SEC complaint, at least 18 insurers had sent the company letters about its billing practices by April 2019.The criminal complaint alleges that Apte and Richman didn't tell investors about the questions insurers were asking.
What's more, the complaint alleges that Apte and Richman "had had to falsify documents and lie to insurance providers in order to attempt to keep them at bay."
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