Two Silicon Valley entrepreneurs who founded a start-up company that tested fecal matter are facing federal charges after they allegedly defrauded investors and health insurance providers to the tune of more than $95million.
Zachary Schulz Apte, 36, and Jessica Sunshine Richman, 46, co-founders of now-bankrupt microbiome testing company uBiome, were indicted Thursday on multiple federal charges, including conspiracy to commit securities fraud, conspiracy to commit health care fraud and money laundering.
Apte, 36, and Richman, 46, founded uBiome in San Francisco in 2012 as a direct-to-consumer service called 'Gut Explorer'.
Customers would submit a fecal sample that the company analyzed in a laboratory, comparing the consumer's microbiome to others' microbiomes, prosecutors said. The service cost less than $100 initially.
The company grew to include 'clinical' tests of gut and vaginal microbiomes, which were aimed to be used by medical providers so uBiome could seek up to $3,000 in reimbursements from health insurance companies.
uBiome billed itself as an 'inventor' of the microbiome industry and marketed its services as being able to 'improve people's lives'. The company began to unravel in 2019 when its offices were raided by the FBI, resulting in the ousters of both Apte and Richman.
The company's collapse has been compared to that of Theranos, the blood-testing firm that falsely claimed to have created technology that could enable a wide array of tests with just a few drops of blood. Theranos founder Elizabeth Holmes is currently awaiting trial on fraud charges similar to those Apte and Richman are facing.
uBiome co-founders Zachary Schulz Apte (left) and Jessica Sunshine Richman (right) were indicted on federal charges on Thursday after they allegedly defrauded investors and health insurance providers to the tune of more than $95million
Apte, 36, and Richman, 46, founded uBiome in San Francisco in 2012 as a direct-to-consumer service called 'Gut Explorer'. One of their fecal matter-testing kits is shown above
The federal indictment against Richman and Apte states that uBiome sought upwards of $300million in reimbursement claims from private and public health insurers between 2015 and 2019.
The company was ultimately paid more than $35million for tests that 'were not validated and not medically necessary'. It also allegedly billed insurance providers and patients for tests that hadn't been conducted yet.
The defendants are also accused of falsifying documents, lying and concealing facts about their billing model when asked by insurance providers, as well as misleading and defrauding their investors.
Apte and Richman's court appearances have not been scheduled, and it was not immediately clear if they had attorneys who could speak on their behalf.
The Department of Justice labeled both Apte and Richman as a 'fugitive' in the court documents.
The couple are also facing separate civil charges brought by the Securities and Exchange Commission, which accused them of fraudulently raising $60million from investors.
An SEC complaint said Apte and Richman of 'painted a false picture of uBiome as a rapidly growing company with a strong track record of reliable revenue through health insurance reimbursements for its tests.
'UBiome's purported success in generating revenue, however, was a sham.'
Apte is pictured in a promotional video for uBiome, which was billed as an 'inventor' of the microbiome industry and marketed its services as being able to 'improve people's lives'
Apte and Richman met in San Francisco in 2012 through the California Institute for Quantitative Biosciences Garage and launched uBiome the same year.
The company got its initial funding from a substantial crowdfunding campaign before attracting the attention of top Silicon valley investors - including 8VC and Andreessen Horowitz, which hold 22 percent and 10 percent stakes in uBiome, respectively, according to court documents.
uBiome's marketed its 'SmartGut' tests as clinical tools that could be used by doctors to inform decisions about patient care - a designation that made them eligible for coverage by health insurance.
The company quickly took off, reaching a peak valuation of $600million. However prosecutors say that valuation was fueled by a series of lies Apte and Richman told during multiple funding rounds.
In 2016 the co-founders allegedly told investors that they had brought in more than $200,000 from insurers in November 2015 and February 2016.
They said that uBiome's billings to insurers generated more than $850 on average, and that most of its claims were paid within 50 days.
In reality, prosecutors said, the company was making far less money and claims were being paid far more slowly.
Apte and Richman (pictured together) met in San Francisco in 2012 through the California Institute for Quantitative Biosciences Garage and launched uBiome the same year
In another funding round in 2018, Apte and Richman allegedly intentionally hid from investors the fact that most doctors ordering the company's tests were only receiving partial information about the customers - and that most of the revenue was coming from old, unreliable samples.
They also allegedly failed to tell investors about multiple complaints the company had received from insurers seeking to recoup payments.
Richman is seen receiving an award at the IVY Innovator Technology Awards in 2015
The SEC alleged that by April 2019, uBiome had received letters from at least 18 insurance providers challenging the company's billing practices.
One insurer alleged that uBiome was engaged in 'fraud and abuse', the SEC said. The agency did not name the insurance providers who submitted letters but the Wall Street Journal reported that the list included Aetna and Anthem.
Richman and Apte married in 2019 and were serving as co-CEOs and board members when the FBI swooped in as part of an investigation into uBiome's billing practices in April of that year.
The company subsequently suspended all of its testing and put Richman and Apte on administrative leave until they were later fired.
uBiome filed for bankruptcy in September 2019 before going into liquidation and shutting down entirely the following month.
The SEC noted that uBiome's board of directors launched an investigation into the company's practices the same month that it was raided by the FBI.
That investigation exposed fraudulent practices and 'made clear that uBiome's business model was untenable', the SEC said.
uBiome's collapse has been compared to that of Theranos, the blood-testing firm that falsely claimed to have created technology that could enable a wide array of tests with just a few drops of blood. Theranos founder Elizabeth Holmes (pictured) is currently awaiting trial on fraud charges similar to those Apte and Richman are facing
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