The founders of uBiome, a microbiome-testing company that went bankrupt and shut down after being raided by the Federal Bureau of Investigation in 2019, were charged with securities fraud by the Securities and Exchange Commission on Thursday (March 18). Jessica Richman and Zachary Apte are accused of defrauding investors out of $60 million by making false claims about the company’s prospects and by allegedly covering up a scheme that involved persuading doctors to order unnecessary tests from the company and claiming reimbursement from insurers.
“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, the director of the Securities and Exchange Commission (SEC) San Francisco Regional Office, says in a statement. “Investors are entitled to know the material risks of the companies they are investing in, no matter how transformative those companies claim to be.”
Founded in 2012, San Franciscio–based uBiome started out as a citizen science project, inviting volunteers to send in stool samples for analysis. A few years later, it pivoted to clinical diagnostics and began marketing its tests to medical providers. The SEC alleges that the company’s business model hinged on duping doctors into ordering clinically useless tests—often just retests of patients’ old samples—so that uBiome could claim reimbursement from insurers.
In 2018—a year in which the company was valued at nearly $600 million—Apte and Richman promoted the company “despite being aware of the significant risks to their business model, including that several insurers had challenged uBiome’s practices in writing before and during the [Series C funding] offering, and despite employee warnings of insurance fraud,” according to the full SEC complaint.
The complaint adds that the pair “misled investors by touting fantastic revenue growth while, at the same time, concealing from investors that uBiome’s revenue depended on keeping insurers in the dark about the company’s improper billing practices.”
The SEC is seeking to bar both founders from becoming directors or officers in other companies in the future, according to the statement. Apte and Richman, who married in 2019, do not currently have court appearances scheduled, SF Gate reports. Lawyers representing the founders did not immediately respond to Reuters’s requests for comment.