A scandal has rocked the pharmaceutical industry as the Securities and Exchange Commission (SEC) filed a complaint against three former executives of a now-defunct online pharmacy company. The SEC lodged the complaint in the United States District Court for the Eastern District of New York on September 12, 2024, targeting Marg Patel, Robert Horowitz, and Chintankumar Bhatt.
The SEC's detailed filing accuses Patel, Horowitz, and Bhatt of orchestrating an elaborate scheme to deceive investors about Medly Health Inc.'s financials from February 2021 through August 2022. Medly Health was promoted as a revolutionary full-service digital pharmacy that promised to minimize costs by reducing reliance on brick-and-mortar locations. Investors were lured with claims that Medly was the "nation’s fastest-growing digital pharmacy" with skyrocketing revenues. However, according to the SEC, much of this revenue was fabricated through fake prescriptions and accounting irregularities orchestrated by Bhatt and concealed by Patel and Horowitz.
Bhatt allegedly created hundreds of fake prescriptions for high-cost medications within Medly's internal systems, generating millions in fictitious accounts receivable. To further obscure their fraudulent activities, Medly restricted its U.S.-based accounting team’s access to these internal systems and relied on analyses from an India-based subsidiary replete with inaccuracies. Despite repeated warnings from several employees about material revenue overstatements, Patel and Horowitz continued to use inflated numbers to attract over $170 million in investments.
By April 2022, the fraudulent scheme began unraveling. At the urging of Medly’s Board of Directors, Horowitz was demoted and soon resigned. When Bhatt’s fake prescriptions came to light internally, Patel was fired by the Board, and Bhatt also resigned shortly thereafter. With its leadership in disarray and its fraudulent activities exposed, Medly quickly deteriorated into bankruptcy. It filed for Chapter 11 protection in December 2022 before converting to Chapter 7 liquidation in April 2023. Investors lost their entire stakes as Medly’s assets were sold off for a fraction of their value.
The SEC alleges that Patel and Horowitz violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 along with Rule 10b-5 thereunder. Bhatt is accused of violating Sections 17(a)(1) and (3) of the Securities Act along with aiding and abetting violations committed by Patel and Horowitz.
The SEC seeks multiple forms of relief including permanent injunctions against future violations by each defendant, disgorgement of ill-gotten gains plus prejudgment interest, civil money penalties, permanent prohibition from serving as officers or directors in any public company registered under Section 12 or required to file reports under Section 15(d) of the Exchange Act.
Representing the plaintiff are attorneys Antonia M. Apps (Regional Director), Sheldon L. Pollock, Judith A. Weinstock, Christopher M. Colorado, Suzanne M. Bettis, Heather Marshall Molavi from the SEC's New York Regional Office. Case ID:1:24-cv-06405.