Founders of poop-testing uBiome, reportedly on the run, charged by SEC with defrauding investors
Following several high-profile hiccups a few years ago that included an FBI raid and ultimately led to a bankruptcy filing, uBiome saw its founders run into more trouble Thursday: securities fraud.
The SEC charged Jessica Richman and Zachary Apte, the co-founders of the poop-testing startup uBiome, with defrauding investors out of $60 million through misleading statements and false representations of the company’s prospects. According to the SEC complaint, the charges stem from a 2018 Series C round valuing the company that once appointed ex-Novartis CEO Joe Jimenez to its board at nearly $600 million.
Regulators submitted their filing in federal court in San Francisco, and are seeking to bar Richman and Apte from serving in future officer and director positions. Thursday’s indictment describes Richman and Apte as fugitives, per a Wall Street Journal report.
Founded way back in 2012, uBiome burst onto the scene with a pledge to crowdsource the sequencing and mapping of the human microbiome — the bacterial ecosystem inside the gut that some scientists say has wide-ranging impacts on one’s health. The company pitched itself as the next 23andMe, offering to analyze stool samples and return health-related advice.
It was an idea that captured the imagination of the early-2010s era Silicon Valley. By the time its Indiegogo funding page closed in February 2013, uBiome had raised over $350,000. The company also recruited several notable scientists over the years, including geneticist George Church to its scientific advisory board.
uBiome eventually expanded their products to include vaginal health and STDs women face. And to ostensibly beef up a drug R&D plan, the company added Jimenez to its board in 2018, despite a scandal where Jimenez paid former President Donald Trump’s personal attorney Michael Cohen a $1.2 million contract.
But the house of cards began to crumble when some researchers sounded alarms that the science behind the company didn’t all add up. They said that, like when 23andMe first started, there simply hadn’t been enough research into the microbiome to offer sweeping health advice based on a stool sample. 23andMe, after facing its own criticism, eventually gained FDA approval for several of its services.
Then in early 2019, uBiome cut 55 jobs from its 300-person workforce. That was quickly followed by reports that April of an impending FBI inquiry into uBiome’s business practices, which ultimately culminated in a raid of their offices. Officials were concerned the startup had allegedly hounded doctors to approve their tests with little oversight and overbilled customers.
The SEC brought those concerns to light in its complaint. Regulators claim that in order to generate revenue, Richman and Apte directed uBiome to fool doctors into ordering unnecessary tests and, despite several warnings from employees and their general counsel, ignored the need for the tests to meet certain health insurance company requirements.
Defendants ignored these warnings and adopted and approved several improper billing practices that they knew, or were reckless in not knowing, fell below insurer requirements and thus, once discovered, would prompt insurers to reject reimbursement claims for uBiome’s clinical tests. Defendants engaged in deceptive acts to conceal facts pertinent to uBiome’s practices from the company’s general counsel, the uBiome board, prescribing doctors, and insurers.
After the investigation became public, Richman and Apte left the company to make room for a new management team. That September, uBiome filed for Chapter 11 bankruptcy, shifting to Chapter 7 liquidation a month later in order to sell off its data and IP.