Investors are suing Outcome Health, a startup selling ad space on screens in doctors' offices, for alleged fraud and breach of contract eight months after pouring $500 million into the company.
First reported in The Wall Street Journal, investors Goldman Sachs, which invested $100 million into the company, Alphabet's investment arm CapitalG, Norwest Venture Partners and Laurene Powell Jobs' Emerson Collective Investments, which each invested $50 million, are seeking to freeze $225 million in those investments, according to the lawsuit, alleging Outcome Health misled investors by "knowingly providing false data and financial reports before the firms invested $487.5 million beginning in March," according to the Journal report.
The $225 million was set aside in a subsidiary to pay investors dividends on the investment.
These same investors now want their money back, claiming in the lawsuit Outcome Health "now hold securities that may be worthless."
In October, TechCrunch reported on allegations Outcome Health had possibly misled advertisers by allegedly charging them for ad placements on more video screens than the company had installed.
At the time, Outcome Health denied those allegations and the Journal reported it had "found nothing to demonstrate top executives’ involvement in the alleged misleading of advertisers."
Outcome now tells TechCrunch, "The equity investors led by Goldman Sachs are misusing the court system to advance their own short-term, self-interest of winning an advantage over debt-holders — all to the detriment of the business, its employees and customers."
However, Outcome told the Journal it had put three employees on paid leave last month, following the report. It had also hired the law firm of former U.S. attorney Dan Webb to look into the allegations.
Investors also became alarmed at the allegations and, according to the Journal, pressed Outcome's CEO Rishi Shah to provide backup of his claims, only to discover "manipulations consistent with those reported by The Wall Street Journal," according to the suit.
The lawsuit also alleges Shah was working to move the funds out of the subsidiary, though investors say in the suit they have been unable to verify this activity.
"We want to use the capital we would be entitled to take out personally instead for the benefit of the business, to further capitalize Outcome Health based on our confidence and commitment to the company and its mission," Outcome Health told TechCrunch in a statement. "We have been completely transparent with employees, customers and investors, and always operated with complete integrity."
It should be noted that even if the courts should rule in favor of these investors, it may be difficult for them to pull their money out. Outcome Health reportedly currently owes somewhere in the neighborhood of $300 million to creditors who would require the startup to pay them back before anyone else.
We've reached out to the aforementioned investors individually and are waiting to hear back about this case. We will be sure to update you if and when they do.
This article originally appeared on TechCrunch.