- The SEC has accused co-founders of uBiome, Jessica Richman and Zachary Apte, of fraud.
- Richman and Apte are also facing criminal charges related to the launch of uPiome.
- uBiome was a microbiome test that was discontinued in 2019 following an FBI attack.
- See more stories on Insider’s business page.
Jessica Richman and Zachary Apte, the co-founders of the now-closed microbiome company uBiome, are facing criminal and civil charges as a result of their efforts to build uBiome into a power test.
The Securities and Exchange Commission claims that Richman and Apte defrauded investors out of $ 60 million by giving a false impression of how well the business is doing. The married co-founders are also facing criminal charges in federal court in California. They were charged on Thursday with charges of medical care and fraud, as well as related conspiracy charges.
In the SEC complaint, it is alleged that Richman (46) and Apte (36) uBiome suggested that they receive health insurance compensation for his tests, which tested shit samples for various conditions related to the health of the intestines. The complaint alleges that the co-founders earned millions because uBiome raised money from investors.
“We claim that Richman and Apte regarded uBiome as a successful and fast-growing biotechnology pioneer, while concealing the fact that the company’s alleged success depends on fraud,” said Erin Schneider, director of the SEC’s regional office in San Francisco, said in a statement.
uBiome is the latest biotechnology in Silicon Valley accused of defrauding investors. The now closed blood test company Theranos settled with the SEC in 2018 over allegations of ‘massive fraud’. Elizabeth Holmes, founder of Theranos, is charged with fraud and is expected to appear in court this summer.
The microbiome testing company uBiome was scrutinized after an FBI attack.
Hollis Johnson / Business Insider
uBiome has changed from scientific project to supported enterprise
uBiome was founded in 2012 on the promise of helping ordinary people understand the bacteria that live in it, known as their microbiome.
The company changed from a civil science project to a supported enterprise, with $ 105 million from investors and a valuation of $ 600 million.
Then the problems began. The FBI raided the company in April 2019. By the end of June that year, the company’s top management and many of its board members had left. In October 2019, the company said it would close during the filing of Chapter 7 bankruptcy.
The complaints paint a detailed picture of how uBiome got health insurance companies to cover its tests, according to prosecutors that it was fraud.
According to the SEC complaint, the founders of uBiome misled doctors into ordering tests. uBiome built a portal that connects patients with doctors who could order the test. According to the complaint, the network of doctors was designed to order and prescribe the two medical tests offered by uBiome, only on an online questionnaire.
How uBiome made health insurers pay for its tests
The civil complaint also alleges that the company misled doctors into testing old samples again. The criminal complaint alleges that uBiome worked to “series” existing samples by telling consumers that there were newer versions of uBiome’s test. By doing so, the complaint alleges, uBiome could increase the number of billable claims while using an existing sample.
Using this network of doctors, uBiome was often able to obtain reimbursements from insurers.
According to the criminal complaint, uBiome misled insurers into paying for tests that were not medically necessary or that were properly screened by medical regulators. In some cases, the company falsified documents using the names of doctors and other health professionals without their knowledge, prosecutors said.
But the insurers grabbed uBiome.
According to the SEC complaint, at least 18 insurers sent letters to the company about its billing practices by April 2019. The criminal complaint alleges that Apte and Richman did not tell investors about the questions insurers asked.
What’s more, the complaint alleges that Apte and Richman “had to falsify documents and lie to insurance providers to try to keep them.”