SEC v. JESSICA RICHMAN; and ZACHARY APTE, No. 3:21-cv-01911, Northern District of California (Mar. 19, 2021) — Complaint

COMPLAINT 1

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ERIN E. SCHNEIDER (Cal. Bar No. 216114)
MONIQUE C. WINKLER (Cal. Bar No. 213031)
BERNARD B. SMYTH (Cal. Bar No. 217741)
  [email protected]
THOMAS J. EME (Ill . Bar No. 6224870)
  [email protected]
DAVID ZHOU (NY Bar No. 4926523)
  [email protected]

Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
44 Montgomery Street, Suite 2800
San Francisco, CA 94104
Telephone: (415) 705-2500
Facsimile:  (415) 705-2501

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO DIVISION
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
 v.
JESSICA RICHMAN and ZACHARY APTE,
Defendants.
Case No. ________
COMPLAINT

Plaintiff Securities and Exchange Commission (“the Commission” or “the SEC”) alleges:
SUMMARY OF THE ACTION
1. During 2018, Jessica Richman and Zachary Apte (together, “Defendants”)
fraudulently raised approximately $60 million for the private company they founded, uBiome, Inc.
(“uBiome” or “the company”), a San Francisco medical testing company that Richman told investors
was “inventing the microbiome industry” and “making products that improve people’s lives.”  The
2018 “Series C” fundraising round led by Defendants valued uBiome at nearly $600 million, and
enriched Richman and Apte by millions each through the sale of their own uBiome shares during the
round.

COMPLAINT 2

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2. To make the securities offering a success, Richman, who was the Chief Executive
Officer of uBiome, and Apte, who was its Chief Scientific Officer, painted a false picture of uBiome
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.
Defendants 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.  Investors invested millions of dollars in uBiome
based on Defendants’ misrepresentations.
3. uBiome’s purported success in generating revenue, however, was a sham.  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.  Although uBiome employees raised concerns regarding the company’s
practices, Defendants failed to take action to remedy the improper practices.  They also failed to
disclose those practices to investors.  Moreover, Defendants acted to conceal the improper practices
from uBiome’s general counsel, uBiome’s board, and insurers, including directing uBiome
employees to provide insurers with backdated and misleading medical records to substantiate the
company’s prior claims for reimbursement.
4. Defendants’ scheme unraveled in or about April 2019, when t he company’s Board of
Directors initiated an internal investigation, following the FBI’s execution of a search warrant at
uBiome’s San Francisco headquarters.  That investigation brought uBiome’s improper billing
practices to light and made clear that uBiome’s business model was untenable.  uBiome then
suspended its clinical tests business, and in September 2019 ceased operations and filed for
bankruptcy protection.  The company is currently undergoing Chapter 7 bankruptcy liquidation.
5. By their actions, Defendants violated the antifraud provisions of the federal securities
laws.  Specifically, Defendants violated 17(a) of the Securities Act of 1933 (“Securities Act”) [15
U.S.C. § 77q(a)] and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15
U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].

COMPLAINT 3

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6. The SEC requests, among other things, that the Court: (i) permanently enjoin
Defendants from further violating the federal securities laws as alleged in this complaint; (ii)
permanently enjoin Defendants from participating in the issuance, purchase, offer, or sale of any
security; (iii) prohibit Defendants from acting as an officer or director of a publicly traded company;
(iv) order Defendants to pay disgorgement with prejudgment interest; and (v) order Defendants to
pay civil monetary penalties.
JURISDICTION AND VENUE
7. The Commission brings this action pursuant to Sections 20(b), 20(d), and 22(a) of the
Securities Act [15 U.S.C. §§ 77t(b), 77t(d), and 77v(a)] and Sections 21(d), 21(e), and 27 of the
Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 78aa].
8. This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d)(1), and
22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d)(1), and 77v(a)] and Sections 21(d), 21(e), and
27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 78aa].
9. Defendants, directly or indirectly, made use of the means and instruments of interstate
commerce or of the mails i n connection with the acts, transactions, practices, and courses of business
alleged in this complaint.
10. Venue is proper in this District pursuant to Section 22(a) of the Securities Act [15
U.S.C. § 77v(a)] and Section 27(a) of the Exchange Act [15 U.S.C. § 78aa(a)].  Acts, transactions,
practices, and courses of business that form the basis for the violations alleged in this complaint
occurred in this District.  Defendants met with and solicited prospective investors in this District, and
offers and sales of securities took place in this District.
11. Under Civil Local Rule 3-  2(d), this civil action should be assigned to the San
Francisco or Oakland Division because a substantial part of the events or omissions that give rise to
the claims alleged herein occurred in San Francisco County, where uBiome’s principal place of
business was located.
DEFENDANTS
12. Jessica Richman (“Richman”), age 46, together with co-Defendant Zachary Apte, co-
founded uBiome in 2012.  At all relevant times, Richman was the Chief Executive Officer and

COMPLAINT 4

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President of uBiome, and a member of uBiome’s Board of Directors.  During the Commission’s
investigation, Richman declined to answer all questions concerning the investigation on the basis of
her Fifth Amendment privilege against self-incrimination.
13. Zachary Apte (“Apte”), age 36, was, at all relevant times, the Chief Scientific Officer
of uBiome and a member of uBiome’s Board of Directors.  At times, he also used the title of co-CEO
of uBiome.  During the Commission’s investigation, Apte declined to answer all questions
concerning the investigation on the basis of his Fifth Amendment privilege against self-incrimination.
RELATED ENTITY
14. uBiome, Inc. is a Delaware corporation that was based in San Francisco, California
and co-founded by Richman and Apte in October 2012.  uBiome operated in the biotech field as a
medical testing company that developed and sold clinical laboratory tests to individual consumers.
On September 4, 2019, uBiome filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court
for the District of Delaware.  The case was later converted to a Chapter 7 proceeding.
FACTUAL ALLEGATIONS
I. uBiome and its B usiness Model
15. Defendants co-founded uBiome in October 2012.  uBiome developed and performed
proprietary laboratory tests that purportedly identified microorganisms in the gut and genitals and
assisted in the diagnosis of conditions such as inflammatory bowel disease and sexually transmitted
infections.
16. At all relevant times, Defendants closely monitored and managed every aspect of
uBiome’s operations together.  Richman focused on the company’s growth and financing, and Apte
concentrated on the technology and science.  However, Defendants addressed most issues together
and no decision about a significant aspect of uBiome’s business was made without the knowledge
and approval of at least one of Richman or Apte.  Defendants also had a romantic relationship and
ultimately married in 2019.

COMPLAINT 5

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II. Defendants Engaged in a Scheme to Inflate the Company’s Revenue Through Improper
Insurance Billing Practices
17.   Beginning in or about late 2015, uBiome, at Defendants’ direction, turned its focus to
developing and marketing tests that could be billed to insurance companies, which generally required
an order or prescription from a healthcare provider.
18. Defendants decided to pivot uBiome’s business model to clinical tests—that is, those
ordered by doctors rather than consumers—so that uBiome would be able to charge insurers
significantly more money for the tests than it charged consumers.  Those higher billings would in turn
allow uBiome to dramatically accelerate its revenue growth in advance of the company’s anticipated
fundraising rounds and eventual initial public offering.
19. In accordance with this plan, on November 1, 2016, uBiome issued a press release
announcing the launch of its first clinical test, SmartGut.  The press release described SmartGut as
“the world’s first sequencing-based clinical microbiome screening test” and touted that “SmartGut is
covered by US health insurance for the majority of patients.”  A year later, on November 14, 2017,
uBiome announced the launch of a second clinical test, SmartJane, which the company’s press
release described as “the first sequencing-based at-home women’s health test” and “Covered by
Health Insurance.”
20. Soon thereafter, Defendants, eager to demonstrate strong growth and revenue to
investors in the lead up to the company’s Series C fundraising round, set an internal goal of 10
percent month-over-month growth in uBiome’s insurance billing volume.  But to meet the goal,
Defendants faced considerable challenges in satisfying health insurer requirements to reimburse the
company’s tests at the rate they desired.
21. Indeed, Defendants were aware, based on several warnings from company employees
and uBiome’s general counsel, that the company needed to meet certain health insurance company
requirements before the company’s tests could be approved for reimbursement.  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

COMPLAINT 6

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acts to conceal facts pertinent to uBiome’s practices from the company’s general counsel, the uBiome
board, prescribing doctors, and insurers.
22. As one example, Defendants oversaw the design and operation of a website portal that
uBiome used to connect doctors to consumers for purposes of ordering tests (the “doctor network”).
This network was essential to uBiome’s insurer reimbursement-based business model, and for
satisfying insurer requirements that a laboratory test be prescribed by a doctor who had formed a
sufficient relationship with a patient prior to ordering tests that would be covered by insurance.  Yet,
as Defendants knew, or were reckless in not knowing, the doctor network fell below insurer
requirements in two aspects.
23. First, as Defendants knew, the doctor network was designed to steer doctors toward
ordering SmartGut or SmartJane tests without establishing the required doctor-patient relationship.
In particular, Defendants understood that the default for doctors was to approve test requests based
solely on online questionnaire responses that consumers submitted through uBiome’s website,
without any pre-existing relationship, live consultation, or further interaction between the doctor and
consumer.  However, in July 2017, shortly after uBiome launched its doctor network, the company’s
general counsel emailed Defendants warning them that any tests prescribed based solely on
consumers’ questionnaires, versus a live consultation between consumer and doctor, would be a
reimbursement risk.  Nevertheless, Defendants continued uBiome’s use of the questionnaire-based
doctor network and concealed this fact from the general counsel and the uBiome board.
24. Second, Defendants used the doctor network to dupe doctors into ordering many tests
of dubious clinical utility.  These tests were retests of consumers’ old samples, and in 2017, uBiome’s
then-laboratory director warned Defendants that such retests lacked “current clinical relevance” and
could be fraudulent.  Despite this warning, Defendants directed uBiome to broadly advertise the
retests to consumers.  Defendants also acted to deceive doctors by making the consumers’ resulting
retest requests appear to be requests for tests on new samples.  For example, at Defendants’ direction,
uBiome resubmitted consumers’ originally reported symptoms to the doctors reviewing retest
requests as if they were newly reported symptoms.  Also, at Apte’s direction, written test results from
the original tests of the samples were withheld from doctors.   Defendants then directed the company

COMPLAINT 7

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to bill insurance companies for these retests in order to create the appearance of steady growth from
at least late 2017 through 2018.
25. Defendants engaged in additional deceptive acts to mislead insurers about the doctor
network.  By May 2018, the start of uBiome’s Series C offering, Defendants learned that certain
insurance companies had asked uBiome to submit supporting medical records reflecting that doctors
had contemporaneously consulted with patients for the billed tests.  Because the records did not exist,
however, Defendants directed company employees to create and backdate records to make it seem as
though doctor-patient consultations had occurred, and then to submit those fake records to insurance
companies.
26. Defendants’ billing scheme extended to other areas.  For instance, Defendants had
uBiome bill for some tests that had not yet been performed and might never be performed because the
version of the test to be used had not been proven to work.  Defendants also ignored insurance rules
that required clinical lab providers to collect from consumers applicable co-pays, coinsurance, and
deductibles, collectively known as “patient responsibility.”  In addition, Defendants misused and
manipulated the billing codes that are a key component of insurers’ review of reimbursement claims.
Indeed, Defendants directed the company to use incorrect insurance billing codes and/or vary the
codes when billing for the same type of test to avoid claims rejection, even though there was no
legitimate basis for doing so.  Defendants engaged in these practices despite warnings from company
employees, including warnings in August 2018 during the Series C offering.
27. Ultimately, Defendants’ billing schemes enabled uBiome to access the lucrative health
insurance reimbursements on which the company relied to create the appearance of rapid increases in
revenue growth.  Indeed, according to financial information that Richman provided to the lead
investor in the Series C round, uBiome generated nearly 91 percent of its revenue from health
insurance reimbursements by the first quarter of 2018.  That same financial information showed that
the company projected billing for its clinical tests to increase to approximately 97 percent of its total
revenue by 2020.

COMPLAINT 8

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III. Defendants Misled Investors in uBiome’s Series C Offering
A. uBiome’s Series C Offering
28. Based on the company’s false appearance of revenue growth, Defendants actively
promoted the Series C offering from approximately May 2018 through September 2018.  They did so
despite being aware of the significant risks to their business model, including that several insurers
had challenged uBiome’s practices in writing before and during the offering, and despite employee
warnings of insurance fraud during the offering.  The offering, which valued uBiome at nearly $600
million, succeeded in raising approximately $59 million through the offer and sale of shares of
uBiome’s preferred stock to approximately 27 investors.
29. In addition to purchasing preferred stock in the Series C offering, approximately six
investors purchased uBiome convertible promissory notes during the same period for a total of more
than $2 million.  The notes, which were prominently labeled as “securities” on their face, had terms
of approximately 360 days and were convertible into uBiome stock.  The investors who purchased
the convertible promissory notes represented that they were acquiring the notes “for investment.”
30. As part of the Series C offering, Richman sold uBiome stock she personally owned for
approximately $5 million.  Apte also sold uBiome stock he personally owned for approximately $5
million.
31. Defendants led uBiome’s Series C offering and actively promoted the company to
prospective investors.  Defendants personally met and communicated with prospective investors as
part of the company’s fundraising efforts, including through participation in due diligence calls.
32. Defendants also provided prospective investors with documents in connection with the
Series C offering, including pitch decks, financial information, and other promotional materials.
Richman was the primary drafter of the pitch decks provided to investors.
B. Defendants Made Material Misrepresentation to Investors Regarding uBiome’s
Business Model and Ability to Generate Revenue
33. In their communications with investors during the offering, Defendants consistently
painted the false picture of uBiome as a company with an established business model that had been

COMPLAINT 9

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proven to generate revenue through collections from healthcare insurers and could be expected to
continue to generate such revenue at a rapidly increasing rate.
34. Defendants repeatedly described uBiome’s clinical tests to investors as “ordered by
doctors, reimbursed by insurance.”  That description of uBiome’s clinical test business was made in
various pitch decks provided by Defendants to prospective investors between May and September
2018, during the company’s Series C offering.
35. Defendants’ representation of uBiome’s clinical tests as “ordered by doctors,
reimbursed by insurance” gave the false and misleading impression that the tests fit squarely within
the well-established and lucrative healthcare insurance reimbursement model.
36. Although uBiome clinical tests were “ordered by doctors,” those doctors, by
Defendants’ own design, often did not know what they were ordering.  As described above,
Defendants acted to conceal from doctors the fact that the tests they were ordering were, in many
cases, actually retests of old samples with no clear clinical utility.
37. Defendants’ representation of uBiome’s business as one based on “reimbursement by
insurance,” was also false and misleading. In truth, Defendants knew, or were reckless in not
knowing, that uBiome was engaged in numerous improper billing practices, as described above, that
would lead insurers to deny reimbursement for tests uBiome billed, once insurers caught on to the
practices.  Indeed, before the end of the Series C offering, Defendants knew that multiple insurers had
challenged the company’s practices, with one alleging that uBiome was engaged in “fraud and
abuse.”
38. Defendants also misled investors by touting fantastic revenue growth while, at the
same time, concealing from investors that uBiome’s revenue depended on keeping insurers in the
dark about the company’s improper billing practices.  For instance, on June 29, 2018, Apte emailed
the lead Series C investor, copying Richman, stating that uBiome “billed 15,351 samples in April,
with an annualized revenue run rate of $109.2 million,” increasing to “16,985 samples in May, with
an annualized revenue run rate of $121.2 million.”  Apte represented that uBiome had “3.4x the
billable samples and revenue” it had in November 2017, and that the company “recognize[d] revenue
of $594 per sample based on what we reasonably expect to collect on the lifetime of a sample.”

COMPLAINT 10

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39. Similarly, in an email that Richman sent widely to solicit Series C investors in July
2018, she wrote, copying Apte, that uBiome had achieved “[r]evenue growth of almost 900% since
June 2017” and would earn “[o]ver $100 million total revenue for 2018.”
40. Defendants knew, or were reckless in not knowing, that the revenue numbers and
projections they provided investors were false and misleading because (i) they were achieved using
billing practices that Defendants knew, or were reckless in not knowing, were improper and that
insurers had begun flagging and rejecting, and (ii) a significant percentage of uBiome’s sales volume
and revenue as represented to investors depended on billing for retests of old samples with no clear
clinical utility.  Indeed, at no point during the Series C round did Defendants disclose to investors the
insurer challenges to uBiome’s billing practices that the company had received.
41. Defendants also falsely represented to investors that uBiome’s clinical tests were
covered by “existing [insurance billing] codes” and “current health plan guidelines.”  These
misrepresentations were included in pitch decks that Richman and Apte each provided to investors
during the Series C round.  The lead investor found these representations to be important because
they signified that uBiome could “quickly and efficiently” launch its clinical tests, thereby avoiding a
years-long process for applying for a new, custom insurance billing code.  In reality, however,
Defendants knew, or were reckless in not knowing, that uBiome was relying on incorrect billing
codes and varying billing codes by insurer to trick insurers into reimbursing the company.  In August
2018, Defendants were warned by a company employee that these practices were potentially
fraudulent.
42. Defendants made additional, specific representations reassuring the lead investor of
the Series C round that several aspects of the company’s business model were valid.  For instance,
Defendants claimed that the company’s doctor network exceeded regulatory standards and had been
vetted by uBiome’s counsel.  Yet, as described above, counsel in fact had warned Defendants about
the risk that insurers would reject the network uBiome used.
43. Defendants’ misrepresentations and other deceptive conduct regarding uBiome’s
business model and ability to generate revenue were important to investors because they were

COMPLAINT 11

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directly related to the viability of uBiome’s business and, therefore, the likelihood that investors
would obtain a return on their investments in the company.
IV. Defendants Fraud Unraveled when uBiome’s Business and Billing Practices Came to
Light
44. During the Series C offering, Defendants knew that uBiome had received challenges
to the company’s practices from multiple insurers, with one alleging that the company was engaged
in “fraud and abuse.”  Nevertheless, Defendants did not disclose any of these challenges to other
members of uBiome’s Board of Directors until December 2018, and even then, Richman falsely
represented that the company had only received one such challenge.  Ultimately, by April 2019,
uBiome had received letters and written communications from at least 18 insurers challenging the
company’s business and billing practices with several seeking clawback payments.
45. In or about April 2019, uBiome’s Board of Directors initiated an internal investigation
of the company’s practices, following the FBI’s execution of a search warrant at uBiome’s San
Francisco headquarters.  Approximately two months after the internal investigation was initiated,
Defendants were both fired.
46. In September 2019, uBiome ceased operations and filed for bankruptcy protection
because it did not have a sustainable model for generating revenue.  The company is currently
undergoing Chapter 7 bankruptcy liquidation.
FIRST CLAIM FOR RELIEF
(Violations of Section 10(b) of the Exchange Act and Rule 10b-5)
47. The Commission realleges and incorporates by reference paragraphs 1 through 46.
48.  Defendants, by engaging in the conduct described above, directly or indirectly, in
connection with the purchase or sale of securities, by use of means or instrumentalities of interstate
commerce, or of the mails, with scienter:
a. Employed devices, schemes, or artifices to defraud;
b. Made untrue statements of material facts or omitted to state material facts
necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading; and

COMPLAINT 12

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c. Engaged in acts, practices, or courses of business which operated or would
operate as a fraud or deceit upon other persons, including purchasers of
securities.
49. By reason of the foregoing, Defendants violated, and unless restrained and enjoined
will continue to violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5
thereunder [17 C.F.R. § 240.10b-5].
SECOND CLAIM FOR RELIEF
(Violations of Section 17(a) of the Securities Act)
50. The Commission realleges and incorporates by reference paragraphs 1 through 46.
51. Defendants, by engaging in the conduct described above, directly or indirectly, in the
offer or sale of securities, by use of the means of instruments of transportation or communication in
interstate commerce or by use of the mails,
a. with scienter, employed devices, schemes, or artifices to defraud;
b. obtained money or property by means of untrue statements of material fact or
by omitting to state a material fact necessary in order to make the statements
made, in light of the circumstances under which they were made, not
misleading; and
c. engaged in transactions, practices, or courses of business which operated or
would operate as a fraud or deceit upon purchasers.
52. By reason of the foregoing, Defendants violated, and unless restrained and enjoined
will continue to violate, Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].
PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that the Court:
I.
Enter an order permanently enjoining Defendants from directly or indirectly violating Section
10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5] thereunder,
and Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].

COMPLAINT 13

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II.
Enter an order permanently enjoining Defendants from directly or indirectly, including, but
not limited to, through any entity owned or controlled by either Defendant, participating in the
issuance, purchase, offer, or sale of any security; provided, however, that such injunction shall not
prevent Defendants from purchasing or selling securities for his or her own personal account.
III.
Enter an order requiring Defendants to disgorge all ill-gotten gains or unjust enrichment
derived from the activities set forth in this complaint, together with prejudgment interest thereon.
IV.
Enter an order requiring Defendants to pay civil penalties pursuant to Section 20(d) of the
Securities Act [15 U.S.C. § 77t(d)] and Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)].
V.
Enter an order prohibiting Defendants from serving as an officer or director of any issuer
having a class of securities registered with the Commission pursuant to Section 12 of the Exchange
Act [15 U.S.C. § 78l] or that is required to file reports pursuant to Section 15(d) of the Exchange Act
[15 U.S.C. § 78o(d)], pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)] and Section
21(d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)].
VI.
Retain jurisdiction of this action in accordance with the principles of equity and the Federal
Rules of Civil Procedure in order to implement and carry out the terms of all orders and decrees that
may be entered, or to entertain any suitable application or motion for additional relief within the
jurisdiction of this Court.

COMPLAINT 14

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VII.
Grant such other and further relief as this Court may determine to be just and necessary.

Dated:   March 18, 2021            Respectfully submitted,

/s/  Thomas J. Eme
Thomas J. Eme
Bernard B. Smyth
David Zhou
Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION

COMPLAINT 1  
 

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ERIN E. SCHNEIDER (Cal. Bar No. 216114) 
MONIQUE C. WINKLER (Cal. Bar No. 213031) 
BERNARD B. SMYTH (Cal. Bar No. 217741) 
  [email protected] 
THOMAS J. EME (Ill. Bar No. 6224870) 
  [email protected] 
DAVID ZHOU (NY Bar No. 4926523) 
  [email protected] 
 
Attorneys for Plaintiff 
SECURITIES AND EXCHANGE COMMISSION 
44 Montgomery Street, Suite 2800 
San Francisco, CA 94104 
Telephone: (415) 705-2500 
Facsimile:  (415) 705-2501 
 

UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF CALIFORNIA 

SAN FRANCISCO DIVISION 

SECURITIES AND EXCHANGE COMMISSION, 

Plaintiff, 

 v. 

JESSICA RICHMAN and ZACHARY APTE,  

Defendants. 

Case No. ________ 

COMPLAINT 

 

Plaintiff Securities and Exchange Commission (“the Commission” or “the SEC”) alleges: 

SUMMARY OF THE ACTION 

1. During 2018, Jessica Richman and Zachary Apte (together, “Defendants”) 

fraudulently raised approximately $60 million for the private company they founded, uBiome, Inc. 

(“uBiome” or “the company”), a San Francisco medical testing company that Richman told investors 

was “inventing the microbiome industry” and “making products that improve people’s lives.”  The 

2018 “Series C” fundraising round led by Defendants valued uBiome at nearly $600 million, and 

enriched Richman and Apte by millions each through the sale of their own uBiome shares during the 

round. 

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COMPLAINT 2  
 

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2. To make the securities offering a success, Richman, who was the Chief Executive 

Officer of uBiome, and Apte, who was its Chief Scientific Officer, painted a false picture of uBiome 

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.  

Defendants 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.  Investors invested millions of dollars in uBiome 

based on Defendants’ misrepresentations. 

3. uBiome’s purported success in generating revenue, however, was a sham.  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.  Although uBiome employees raised concerns regarding the company’s 

practices, Defendants failed to take action to remedy the improper practices.  They also failed to 

disclose those practices to investors.  Moreover, Defendants acted to conceal the improper practices 

from uBiome’s general counsel, uBiome’s board, and insurers, including directing uBiome 

employees to provide insurers with backdated and misleading medical records to substantiate the 

company’s prior claims for reimbursement.   

4. Defendants’ scheme unraveled in or about April 2019, when the company’s Board of 

Directors initiated an internal investigation, following the FBI’s execution of a search warrant at 

uBiome’s San Francisco headquarters.  That investigation brought uBiome’s improper billing 

practices to light and made clear that uBiome’s business model was untenable.  uBiome then 

suspended its clinical tests business, and in September 2019 ceased operations and filed for 

bankruptcy protection.  The company is currently undergoing Chapter 7 bankruptcy liquidation. 

5. By their actions, Defendants violated the antifraud provisions of the federal securities 

laws.  Specifically, Defendants violated 17(a) of the Securities Act of 1933 (“Securities Act”) [15 

U.S.C. § 77q(a)] and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 

U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. 

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COMPLAINT 3  
 

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6. The SEC requests, among other things, that the Court: (i) permanently enjoin 

Defendants from further violating the federal securities laws as alleged in this complaint; (ii) 

permanently enjoin Defendants from participating in the issuance, purchase, offer, or sale of any 

security; (iii) prohibit Defendants from acting as an officer or director of a publicly traded company; 

(iv) order Defendants to pay disgorgement with prejudgment interest; and (v) order Defendants to 

pay civil monetary penalties. 

JURISDICTION AND VENUE 

7. The Commission brings this action pursuant to Sections 20(b), 20(d), and 22(a) of the 

Securities Act [15 U.S.C. §§ 77t(b), 77t(d), and 77v(a)] and Sections 21(d), 21(e), and 27 of the 

Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 78aa].   

8. This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d)(1), and 

22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d)(1), and 77v(a)] and Sections 21(d), 21(e), and 

27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 78aa]. 

9. Defendants, directly or indirectly, made use of the means and instruments of interstate 

commerce or of the mails in connection with the acts, transactions, practices, and courses of business 

alleged in this complaint.  

10. Venue is proper in this District pursuant to Section 22(a) of the Securities Act [15 

U.S.C. § 77v(a)] and Section 27(a) of the Exchange Act [15 U.S.C. § 78aa(a)].  Acts, transactions, 

practices, and courses of business that form the basis for the violations alleged in this complaint 

occurred in this District.  Defendants met with and solicited prospective investors in this District, and 

offers and sales of securities took place in this District.  

11. Under Civil Local Rule 3-2(d), this civil action should be assigned to the San 

Francisco or Oakland Division because a substantial part of the events or omissions that give rise to 

the claims alleged herein occurred in San Francisco County, where uBiome’s principal place of 

business was located.    

DEFENDANTS 

12. Jessica Richman (“Richman”), age 46, together with co-Defendant Zachary Apte, co-

founded uBiome in 2012.  At all relevant times, Richman was the Chief Executive Officer and 

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President of uBiome, and a member of uBiome’s Board of Directors.  During the Commission’s 

investigation, Richman declined to answer all questions concerning the investigation on the basis of 

her Fifth Amendment privilege against self-incrimination. 

13. Zachary Apte (“Apte”), age 36, was, at all relevant times, the Chief Scientific Officer 

of uBiome and a member of uBiome’s Board of Directors.  At times, he also used the title of co-CEO 

of uBiome.  During the Commission’s investigation, Apte declined to answer all questions 

concerning the investigation on the basis of his Fifth Amendment privilege against self-incrimination. 

RELATED ENTITY 

14. uBiome, Inc. is a Delaware corporation that was based in San Francisco, California 

and co-founded by Richman and Apte in October 2012.  uBiome operated in the biotech field as a 

medical testing company that developed and sold clinical laboratory tests to individual consumers.  

On September 4, 2019, uBiome filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court 

for the District of Delaware.  The case was later converted to a Chapter 7 proceeding.  

FACTUAL ALLEGATIONS 

I. uBiome and its Business Model   

15. Defendants co-founded uBiome in October 2012.  uBiome developed and performed 

proprietary laboratory tests that purportedly identified microorganisms in the gut and genitals and 

assisted in the diagnosis of conditions such as inflammatory bowel disease and sexually transmitted 

infections.   

16. At all relevant times, Defendants closely monitored and managed every aspect of 

uBiome’s operations together.  Richman focused on the company’s growth and financing, and Apte 

concentrated on the technology and science.  However, Defendants addressed most issues together 

and no decision about a significant aspect of uBiome’s business was made without the knowledge 

and approval of at least one of Richman or Apte.  Defendants also had a romantic relationship and 

ultimately married in 2019. 

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II. Defendants Engaged in a Scheme to Inflate the Company’s Revenue Through Improper 

Insurance Billing Practices  

17.   Beginning in or about late 2015, uBiome, at Defendants’ direction, turned its focus to 

developing and marketing tests that could be billed to insurance companies, which generally required 

an order or prescription from a healthcare provider.  

18. Defendants decided to pivot uBiome’s business model to clinical tests—that is, those 

ordered by doctors rather than consumers—so that uBiome would be able to charge insurers 

significantly more money for the tests than it charged consumers.  Those higher billings would in turn 

allow uBiome to dramatically accelerate its revenue growth in advance of the company’s anticipated 

fundraising rounds and eventual initial public offering. 

19. In accordance with this plan, on November 1, 2016, uBiome issued a press release 

announcing the launch of its first clinical test, SmartGut.  The press release described SmartGut as 

“the world’s first sequencing-based clinical microbiome screening test” and touted that “SmartGut is 

covered by US health insurance for the majority of patients.”  A year later, on November 14, 2017, 

uBiome announced the launch of a second clinical test, SmartJane, which the company’s press 

release described as “the first sequencing-based at-home women’s health test” and “Covered by 

Health Insurance.”  

20. Soon thereafter, Defendants, eager to demonstrate strong growth and revenue to 

investors in the lead up to the company’s Series C fundraising round, set an internal goal of 10 

percent month-over-month growth in uBiome’s insurance billing volume.  But to meet the goal, 

Defendants faced considerable challenges in satisfying health insurer requirements to reimburse the 

company’s tests at the rate they desired. 

21. Indeed, Defendants were aware, based on several warnings from company employees 

and uBiome’s general counsel, that the company needed to meet certain health insurance company 

requirements before the company’s tests could be approved for reimbursement.  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 

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acts to conceal facts pertinent to uBiome’s practices from the company’s general counsel, the uBiome 

board, prescribing doctors, and insurers. 

22. As one example, Defendants oversaw the design and operation of a website portal that 

uBiome used to connect doctors to consumers for purposes of ordering tests (the “doctor network”).  

This network was essential to uBiome’s insurer reimbursement-based business model, and for 

satisfying insurer requirements that a laboratory test be prescribed by a doctor who had formed a 

sufficient relationship with a patient prior to ordering tests that would be covered by insurance.  Yet, 

as Defendants knew, or were reckless in not knowing, the doctor network fell below insurer 

requirements in two aspects. 

23. First, as Defendants knew, the doctor network was designed to steer doctors toward 

ordering SmartGut or SmartJane tests without establishing the required doctor-patient relationship.  

In particular, Defendants understood that the default for doctors was to approve test requests based 

solely on online questionnaire responses that consumers submitted through uBiome’s website, 

without any pre-existing relationship, live consultation, or further interaction between the doctor and 

consumer.  However, in July 2017, shortly after uBiome launched its doctor network, the company’s 

general counsel emailed Defendants warning them that any tests prescribed based solely on 

consumers’ questionnaires, versus a live consultation between consumer and doctor, would be a 

reimbursement risk.  Nevertheless, Defendants continued uBiome’s use of the questionnaire-based 

doctor network and concealed this fact from the general counsel and the uBiome board. 

24. Second, Defendants used the doctor network to dupe doctors into ordering many tests 

of dubious clinical utility.  These tests were retests of consumers’ old samples, and in 2017, uBiome’s 

then-laboratory director warned Defendants that such retests lacked “current clinical relevance” and 

could be fraudulent.  Despite this warning, Defendants directed uBiome to broadly advertise the 

retests to consumers.  Defendants also acted to deceive doctors by making the consumers’ resulting 

retest requests appear to be requests for tests on new samples.  For example, at Defendants’ direction, 

uBiome resubmitted consumers’ originally reported symptoms to the doctors reviewing retest 

requests as if they were newly reported symptoms.  Also, at Apte’s direction, written test results from 

the original tests of the samples were withheld from doctors.  Defendants then directed the company 

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to bill insurance companies for these retests in order to create the appearance of steady growth from 

at least late 2017 through 2018.  

25. Defendants engaged in additional deceptive acts to mislead insurers about the doctor 

network.  By May 2018, the start of uBiome’s Series C offering, Defendants learned that certain 

insurance companies had asked uBiome to submit supporting medical records reflecting that doctors 

had contemporaneously consulted with patients for the billed tests.  Because the records did not exist, 

however, Defendants directed company employees to create and backdate records to make it seem as 

though doctor-patient consultations had occurred, and then to submit those fake records to insurance 

companies. 

26. Defendants’ billing scheme extended to other areas.  For instance, Defendants had 

uBiome bill for some tests that had not yet been performed and might never be performed because the 

version of the test to be used had not been proven to work.  Defendants also ignored insurance rules 

that required clinical lab providers to collect from consumers applicable co-pays, coinsurance, and 

deductibles, collectively known as “patient responsibility.”  In addition, Defendants misused and 

manipulated the billing codes that are a key component of insurers’ review of reimbursement claims.  

Indeed, Defendants directed the company to use incorrect insurance billing codes and/or vary the 

codes when billing for the same type of test to avoid claims rejection, even though there was no 

legitimate basis for doing so.  Defendants engaged in these practices despite warnings from company 

employees, including warnings in August 2018 during the Series C offering.  

27. Ultimately, Defendants’ billing schemes enabled uBiome to access the lucrative health 

insurance reimbursements on which the company relied to create the appearance of rapid increases in 

revenue growth.  Indeed, according to financial information that Richman provided to the lead 

investor in the Series C round, uBiome generated nearly 91 percent of its revenue from health 

insurance reimbursements by the first quarter of 2018.  That same financial information showed that 

the company projected billing for its clinical tests to increase to approximately 97 percent of its total 

revenue by 2020. 

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III. Defendants Misled Investors in uBiome’s Series C Offering 

A. uBiome’s Series C Offering 

28. Based on the company’s false appearance of revenue growth, Defendants actively 

promoted the Series C offering from approximately May 2018 through September 2018.  They did so 

despite being aware of the significant risks to their business model, including that several insurers 

had challenged uBiome’s practices in writing before and during the offering, and despite employee 

warnings of insurance fraud during the offering.  The offering, which valued uBiome at nearly $600 

million, succeeded in raising approximately $59 million through the offer and sale of shares of 

uBiome’s preferred stock to approximately 27 investors. 

29. In addition to purchasing preferred stock in the Series C offering, approximately six 

investors purchased uBiome convertible promissory notes during the same period for a total of more 

than $2 million.  The notes, which were prominently labeled as “securities” on their face, had terms 

of approximately 360 days and were convertible into uBiome stock.  The investors who purchased 

the convertible promissory notes represented that they were acquiring the notes “for investment.” 

30. As part of the Series C offering, Richman sold uBiome stock she personally owned for 

approximately $5 million.  Apte also sold uBiome stock he personally owned for approximately $5 

million. 

31. Defendants led uBiome’s Series C offering and actively promoted the company to 

prospective investors.  Defendants personally met and communicated with prospective investors as 

part of the company’s fundraising efforts, including through participation in due diligence calls. 

32. Defendants also provided prospective investors with documents in connection with the 

Series C offering, including pitch decks, financial information, and other promotional materials.  

Richman was the primary drafter of the pitch decks provided to investors. 

B. Defendants Made Material Misrepresentation to Investors Regarding uBiome’s 

Business Model and Ability to Generate Revenue 

33. In their communications with investors during the offering, Defendants consistently 

painted the false picture of uBiome as a company with an established business model that had been 

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proven to generate revenue through collections from healthcare insurers and could be expected to 

continue to generate such revenue at a rapidly increasing rate. 

34. Defendants repeatedly described uBiome’s clinical tests to investors as “ordered by 

doctors, reimbursed by insurance.”  That description of uBiome’s clinical test business was made in 

various pitch decks provided by Defendants to prospective investors between May and September 

2018, during the company’s Series C offering. 

35. Defendants’ representation of uBiome’s clinical tests as “ordered by doctors, 

reimbursed by insurance” gave the false and misleading impression that the tests fit squarely within 

the well-established and lucrative healthcare insurance reimbursement model.  

36. Although uBiome clinical tests were “ordered by doctors,” those doctors, by 

Defendants’ own design, often did not know what they were ordering.  As described above, 

Defendants acted to conceal from doctors the fact that the tests they were ordering were, in many 

cases, actually retests of old samples with no clear clinical utility. 

37. Defendants’ representation of uBiome’s business as one based on “reimbursement by 

insurance,” was also false and misleading. In truth, Defendants knew, or were reckless in not 

knowing, that uBiome was engaged in numerous improper billing practices, as described above, that 

would lead insurers to deny reimbursement for tests uBiome billed, once insurers caught on to the 

practices.  Indeed, before the end of the Series C offering, Defendants knew that multiple insurers had 

challenged the company’s practices, with one alleging that uBiome was engaged in “fraud and 

abuse.”   

38. Defendants also misled investors by touting fantastic revenue growth while, at the 

same time, concealing from investors that uBiome’s revenue depended on keeping insurers in the 

dark about the company’s improper billing practices.  For instance, on June 29, 2018, Apte emailed 

the lead Series C investor, copying Richman, stating that uBiome “billed 15,351 samples in April, 

with an annualized revenue run rate of $109.2 million,” increasing to “16,985 samples in May, with 

an annualized revenue run rate of $121.2 million.”  Apte represented that uBiome had “3.4x the 

billable samples and revenue” it had in November 2017, and that the company “recognize[d] revenue 

of $594 per sample based on what we reasonably expect to collect on the lifetime of a sample.” 

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39. Similarly, in an email that Richman sent widely to solicit Series C investors in July 

2018, she wrote, copying Apte, that uBiome had achieved “[r]evenue growth of almost 900% since 

June 2017” and would earn “[o]ver $100 million total revenue for 2018.”  

40. Defendants knew, or were reckless in not knowing, that the revenue numbers and 

projections they provided investors were false and misleading because (i) they were achieved using 

billing practices that Defendants knew, or were reckless in not knowing, were improper and that 

insurers had begun flagging and rejecting, and (ii) a significant percentage of uBiome’s sales volume 

and revenue as represented to investors depended on billing for retests of old samples with no clear 

clinical utility.  Indeed, at no point during the Series C round did Defendants disclose to investors the 

insurer challenges to uBiome’s billing practices that the company had received. 

41. Defendants also falsely represented to investors that uBiome’s clinical tests were 

covered by “existing [insurance billing] codes” and “current health plan guidelines.”  These 

misrepresentations were included in pitch decks that Richman and Apte each provided to investors 

during the Series C round.  The lead investor found these representations to be important because 

they signified that uBiome could “quickly and efficiently” launch its clinical tests, thereby avoiding a 

years-long process for applying for a new, custom insurance billing code.  In reality, however, 

Defendants knew, or were reckless in not knowing, that uBiome was relying on incorrect billing 

codes and varying billing codes by insurer to trick insurers into reimbursing the company.  In August 

2018, Defendants were warned by a company employee that these practices were potentially 

fraudulent.  

42. Defendants made additional, specific representations reassuring the lead investor of 

the Series C round that several aspects of the company’s business model were valid.  For instance, 

Defendants claimed that the company’s doctor network exceeded regulatory standards and had been 

vetted by uBiome’s counsel.  Yet, as described above, counsel in fact had warned Defendants about 

the risk that insurers would reject the network uBiome used. 

43. Defendants’ misrepresentations and other deceptive conduct regarding uBiome’s 

business model and ability to generate revenue were important to investors because they were 

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directly related to the viability of uBiome’s business and, therefore, the likelihood that investors 

would obtain a return on their investments in the company. 

IV. Defendants Fraud Unraveled when uBiome’s Business and Billing Practices Came to 

Light 

44. During the Series C offering, Defendants knew that uBiome had received challenges 

to the company’s practices from multiple insurers, with one alleging that the company was engaged 

in “fraud and abuse.”  Nevertheless, Defendants did not disclose any of these challenges to other 

members of uBiome’s Board of Directors until December 2018, and even then, Richman falsely 

represented that the company had only received one such challenge.  Ultimately, by April 2019, 

uBiome had received letters and written communications from at least 18 insurers challenging the 

company’s business and billing practices with several seeking clawback payments.   

45. In or about April 2019, uBiome’s Board of Directors initiated an internal investigation 

of the company’s practices, following the FBI’s execution of a search warrant at uBiome’s San 

Francisco headquarters.  Approximately two months after the internal investigation was initiated, 

Defendants were both fired. 

46. In September 2019, uBiome ceased operations and filed for bankruptcy protection 

because it did not have a sustainable model for generating revenue.  The company is currently 

undergoing Chapter 7 bankruptcy liquidation. 

FIRST CLAIM FOR RELIEF 

(Violations of Section 10(b) of the Exchange Act and Rule 10b-5) 

47. The Commission realleges and incorporates by reference paragraphs 1 through 46. 

48.  Defendants, by engaging in the conduct described above, directly or indirectly, in 

connection with the purchase or sale of securities, by use of means or instrumentalities of interstate 

commerce, or of the mails, with scienter: 

a. Employed devices, schemes, or artifices to defraud; 

b. Made untrue statements of material facts or omitted to state material facts 

necessary in order to make the statements made, in the light of the 

circumstances under which they were made, not misleading; and 

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c. Engaged in acts, practices, or courses of business which operated or would 

operate as a fraud or deceit upon other persons, including purchasers of 

securities. 

49. By reason of the foregoing, Defendants violated, and unless restrained and enjoined 

will continue to violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 

thereunder [17 C.F.R. § 240.10b-5]. 

SECOND CLAIM FOR RELIEF 

(Violations of Section 17(a) of the Securities Act) 

50. The Commission realleges and incorporates by reference paragraphs 1 through 46. 

51. Defendants, by engaging in the conduct described above, directly or indirectly, in the 

offer or sale of securities, by use of the means of instruments of transportation or communication in 

interstate commerce or by use of the mails, 

a. with scienter, employed devices, schemes, or artifices to defraud; 

b. obtained money or property by means of untrue statements of material fact or 

by omitting to state a material fact necessary in order to make the statements 

made, in light of the circumstances under which they were made, not 

misleading; and 

c. engaged in transactions, practices, or courses of business which operated or 

would operate as a fraud or deceit upon purchasers. 

52. By reason of the foregoing, Defendants violated, and unless restrained and enjoined 

will continue to violate, Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)]. 

PRAYER FOR RELIEF 

WHEREFORE, the Commission respectfully requests that the Court:   

I. 

Enter an order permanently enjoining Defendants from directly or indirectly violating Section 

10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5] thereunder, 

and Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].  

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II. 

Enter an order permanently enjoining Defendants from directly or indirectly, including, but 

not limited to, through any entity owned or controlled by either Defendant, participating in the 

issuance, purchase, offer, or sale of any security; provided, however, that such injunction shall not 

prevent Defendants from purchasing or selling securities for his or her own personal account. 

III. 

Enter an order requiring Defendants to disgorge all ill-gotten gains or unjust enrichment 

derived from the activities set forth in this complaint, together with prejudgment interest thereon. 

IV. 

Enter an order requiring Defendants to pay civil penalties pursuant to Section 20(d) of the 

Securities Act [15 U.S.C. § 77t(d)] and Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)]. 

V. 

Enter an order prohibiting Defendants from serving as an officer or director of any issuer 

having a class of securities registered with the Commission pursuant to Section 12 of the Exchange 

Act [15 U.S.C. § 78l] or that is required to file reports pursuant to Section 15(d) of the Exchange Act 

[15 U.S.C. § 78o(d)], pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)] and Section 

21(d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)]. 

VI. 

Retain jurisdiction of this action in accordance with the principles of equity and the Federal 

Rules of Civil Procedure in order to implement and carry out the terms of all orders and decrees that 

may be entered, or to entertain any suitable application or motion for additional relief within the 

jurisdiction of this Court. 

Case 3:21-cv-01911   Document 1   Filed 03/18/21   Page 13 of 14



 

COMPLAINT 14  
 

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VII. 

Grant such other and further relief as this Court may determine to be just and necessary. 

 

Dated:  March 18, 2021            Respectfully submitted, 

 
/s/  Thomas J. Eme   
Thomas J. Eme 
Bernard B. Smyth 
David Zhou 
Attorneys for Plaintiff 
SECURITIES AND EXCHANGE COMMISSION 

Case 3:21-cv-01911   Document 1   Filed 03/18/21   Page 14 of 14