SEC Charges Three Medly Executives with Fraud in Investment Scheme

The Securities and Exchange Commission (SEC) has charged three former executives of Medly, a now-defunct online pharmacy, with defrauding investors.

According to a press release issued on Thursday, former CEO Marg Patel, former Chief Financial Officer Robert Horowitz, and former Head of Pharmacy Operations Chintankumar Bhatt were charged with violating the antifraud provisions of U.S. securities laws. Bhatt faces additional charges of aiding and abetting Patel and Horowitz in violating these laws.

The SEC's complaint, filed in the U.S. District Court for the Eastern District of New York, alleges that starting in February 2021, Bhatt entered millions of dollars' worth of fake prescriptions into Medly’s system. Many of these fake prescriptions were for high-cost medications, according to the SEC. Patel and Horowitz then allegedly referred to this fabricated revenue as legitimate when attempting to raise funds from current and potential investors.

"Investors were told that Medly was succeeding wildly as the ‘nation’s fastest-growing digital pharmacy,’ with exploding revenue growth,” the SEC’s complaint stated. The SEC also alleged that Medly’s finance and accounting teams were not given access to the internal prescription system, and any data analysis was outsourced to a team based in India.

The fraudulent scheme, according to the SEC, enabled Medly to raise $170 million in capital from investors by August 2022. Despite employees discovering the inflated prescription and revenue figures, and repeatedly raising concerns with Patel and Horowitz, the executives failed to address these irregularities, the SEC charged.

The complaint goes on to accuse Patel and Horowitz of knowingly ignoring the gross accounting irregularities within the company. By April 2022, Medly’s board became aware of the scheme, leading to the resignation or dismissal of the executives. Medly ultimately filed for Chapter 11 bankruptcy protection and was liquidated by April 2023, resulting in significant investor losses, according to the SEC.

The SEC is seeking penalties, disgorgement, and officer-and-director bars against the three former executives. Sheldon Pollock, associate director of enforcement at the SEC’s New York office, said in the press release, “The alleged facts of this case demonstrate significant corporate malfeasance. We allege the defendants harmed investors by misleading them about the company’s revenues, with one defendant going as far as making up fake prescription orders to increase revenue numbers."

None of the former executives were immediately available for comment.

By fLEXI tEAM