NEW YORK — The US Securities and Exchange Commission on Thursday sued the founders of human microbiome testing firm uBiome for allegedly defrauding its investors out of $60 million.
According to the suit, which was filed in the US District Court, Northern District of California, San Francisco Division, uBiome Cofounders Jessica Richman and Zachary Apte misled investors in order to close a Series C financing round in late 2018, falsely describing the firm as "a rapidly growing company with a strong track record of reliable revenue through health insurance reimbursements for its tests, one to detect 'gut' microorganisms and another for women's health."
Richman, who served as uBiome's CEO, and Apte, who was its CSO, also "made numerous misrepresentations that were designed to assure investors that the company's business model and its tests were widely accepted by health insurance companies and downplay any risks to the company's revenue," the SEC charged in its suit.
However, uBiome's ability to generate revenues actually depended on convincing doctors to order unnecessary tests, as well as other improper practices overseen by Richman and Apte, the SEC stated. These practices were not disclosed to investors and once discovered, led insurers to claw back previous reimbursement payments to the company.
Both Richman and Apte made millions of dollars by selling shares in uBiome in the Series C round, the SEC said.
uBiome, which was based in San Francisco, was founded in 2012 as a citizen science effort to map the human microbiome. The company raised $120,000 in crowdfunding in early 2013 and later launched a CLIA lab to provide clinical testing using microbial assays developed in part with data generated through that mapping effort.
Following the 2018 Series C round, however, the company ran into financial trouble and cut 55 of its 300 employees in early 2019. Later that year, uBiome's office was raided by the US Federal Bureau of Investigation, which was looking into the company's billing practices.
In late 2019, uBiome filed for Chapter 7 bankruptcy as it sought to liquidate its assets and pay off creditors.
In its lawsuit, the SEC is seeking a return of the money Richman and Apte made as a result of the alleged fraud plus civil penalties, among other things.