Founders of medical science upstart uBiome once likened to Theranos now indicted for, you guessed it, fraud

Jessica Richman, 46, and Zachary Apte, 36, co-founders of San Francisco-based medical testing startup uBiome, have been indicted on civil and criminal charges for allegedly bilking investors out of $60m.

The SEC, America's financial watchdog, charged the entrepreneurs with misrepresenting uBiome's success by falsely claiming that the company's diagnostic tests for fecal and vaginal microbiome samples were widely accepted by health insurance companies. The truth was anything but.

"uBiome’s purported success in generating revenue, however, was a sham," the SEC's civil complaint [PDF] in the Northern District of California says. "It depended on duping doctors into ordering unnecessary tests and other improper practices that Richman and Apte directed and which, once discovered, led insurers to claw back their previous reimbursement payments to uBiome."

The duo, who are fugitives and have not yet been arrested, also face more than 40 criminal charges brought by the US Justice Department, including conspiracy to commit securities fraud and health care fraud, money laundering, and aggravated identity theft, among others.

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"The indictment alleges defendants bilked insurance providers with fraudulent reimbursement requests, a practice that inevitably would result in higher premiums for us all," said Acting US Attorney Stephanie Hind in a statement. "Further, defendants cashed out on the investment that flowed into the company to benefit themselves."

During the time it was operational, from its founding in 2012 until an FBI raid and bankruptcy in 2019, uBiome was likened to Theranos, a comparison that now seems even more apt with top execs at both companies – Elizabeth Holmes and Ramesh “Sunny” Balwani of Theranos; and Richman and Apte of uBiome – fighting federal fraud charges in court.

Initially, uBiome offered its "Gut Explorer" test directly to consumers, who would mail a fecal sample to a lab and get a report "as a way to get a better understanding of what was going on in one’s gut," the DoJ complaint explains.

Initially priced at less than $100, the test wasn't marketed as a diagnostic or medical tool. Rather, it was positioned as a way to help people understand more about the bacteria in their gut. According to the feds, Apte and Richman realized by 2014 that selling to the consumer market wouldn't generate the revenue needed to keep the company going, so they determined their company should develop clinical tests for medical professionals, paid for by insurers.

By November, 2015, the company was submitting claims for its test, renamed "SmartGut," which saw version 2.0 and 3.0 releases in 2017 and 2018. uBiome also developed a vaginal microbe test, called "SmartJane," in late 2017. For its tests, the testing biz charged insurance companies around $2,970 each.

Apte and Richman, according to the Justice Department, devised and implemented various fraudulent practices to dupe healthcare providers and insurance companies into paying for tests that were not validated or medically necessary. They're said to have falsified documents and concealed material facts from insurance providers to protect their fraudulent billing scheme.

The government's legal filings offer no indication about whether either defendant yet has legal representation, though they note that Apte in June, 2019, deposited $2m to an Interest on Lawyer Trust Account (IOLTA) to fund future legal needs. ®