Racism, sexism and now fraud: Lawsuits pile up at New Jersey ‘AI’ firm

Last year, a midsized New Jersey company made a bold claim: that it could diagnose Covid-19 patients in emergency rooms using AI. An investigation by MedCity News found that executives from ElectrifAi were inflating the tool’s capabilities. Whistleblowers and one lawsuit brought by a former employee accused the company’s CEO of racism and harassment.

Now, ElectrifAi’s legal troubles are adding up, as it faces lawsuits from two more former employees hired by CEO Edward Scott claiming that he lied to customers about its supposed AI capabilities, lied to investors about its revenue, harassed employees and shut out those who raised concerns about its business practices.

A lawsuit filed against the company in July describes ElectrifAi as a “hotbed of fraud and lies made to investors, clients and employees about everything from its revenue to non-existent products, its capabilities and inventory.”

The plaintiff, former head of product Jim McGowan, said that ElectrifAi claimed it had 1,000 pre-built machine learning models, when in reality, it had less than 120, including some that were in the early stages of development. That claim is still on ElectrifAi’s website, where it says it has “over 1,000 ready-to-deploy machine learning models,” and more than 100 pre-configured use cases.

‘Sell them something’
Some of the models that ElectrifAi marketed never even existed, or would have needed several months of work to function, according to the lawsuit.  Examples include an imaging model for medical research, a cost prediction model, and the ability to mine the text in clinician notes.

In one case, a contract reportedly stalled because Scott had pitched a model for detecting unemployment insurance fraud, but ElectrifAi had never created or deployed one. When McGowan explained that the product simply did not exist, Scott allegedly told him to “sell them something.” McGowan refused to close the deal, according to the lawsuit.

Sometimes, Scott would go to potential customers and make “really tall claims,” said a person with knowledge of the company’s practices. One example of this was its purported Covid-19 solution.

ElectrifAi had claimed that Catholic Health Services of Long Island was going to implement its PlumoAi solution to detect Covid-19 in patients. But neither the hospital nor the company ever confirmed it was ever used.

It’s also not clear how the model would have actually worked. ElectrifAi said it had gathered about 100 images of lungs, starting with training the model on 10 images of Covid-19 patients, but this is far too small a sample to build a working algorithm, as MedCity News previously reported.

Through LinkedIn posts and external podcasts,  ElectrifAi executives had breathlessly promoted the capabilities of the product — called PulmoAi — during much of 2020. Lately, however, there does not appear to be a single mention of PulmoAi on the company’s LinkedIn page.

Changing numbers on revenue, customers
The alleged lies extended beyond ElectrifAi’s technology. In sales pitches, Scott wrote that ElectrifAi had more than 200 hospital customers, when it couldn’t have been higher than 111, according to the complaint.

In the complaint, McGowan also alleged that Scott made claims about the company’s revenue that simply weren’t backed up by the numbers.

He allegedly told prospects that “You should think of ElectrifAi as a $50 million company.”

But in internal meetings with ElectrifAi’s management, Scott and the company’s CTO said the company had about $19 million in revenue for fiscal 2020, the complaint said.

At board meetings, Scott said ElectrifAI would reach at least $30 million by the end of 2020, and in an attempt to get a company to sign a reseller agreement, he told a CEO that ElectrifAi made more than $40 million, according to the lawsuit. But when he couldn’t produce an audited financial report, the deal never closed.

People interviewed said Scott was under tremendous pressure to boost revenue as customers left. For instance, in the healthcare segment, ElectrifAi’s hospital customers used a service to detect missing charges where they neglected to bill patients or insurance companies.

Over time, the need for the software would reduce as hospitals would gain an understanding of why the charges were being missed. As a result, many customers were not renewing their contracts, as they struggled to justify the cost of the software, a former executive said. To manage this, employees were instructed to trickle out the charges slowly, and make reports look like higher charges were found so that hospitals would renew their contracts with ElectrifAi, the person said.

From Opera to ElectrifAi
If the company is losing revenue and clients, then Scott hasn’t been able to turn around the fortunes of the company that he was installed to revive.

The company, formerly known as Opera Solutions, had taken out a loan from San Francisco-based private equity firm White Oak Global Advisors. But when the loan came due, and ElectrifAi couldn’t repay it, White Oak took over.

Scott, a managing director of White Oak, was named CEO of Opera in 2018, which was soon rebranded to ElectrifAi (pronounced “electrify”). That was around that time the company began emphasizing its AI products, even though it had never worked on anything AI-related beforehand, according to the two people with knowledge of the firm’s history.

While Scott hasn’t been able to turn around the business, according to these people, he has rather presided over a company that has lost employees due to firings and resignations. He has also made the corporate culture toxic, the lawsuits charge.

Debra Fahey, who Scott hired in 2019, alleged in her June lawsuit that the company failed to act after ElectrifAi’s late CIO reportedly called her at night, intoxicated, and “bombarded” her with sexual innuendos. In the complaint, she said leadership berated her for reporting the harassment.

She and other employees also described instances where Scott made racist remarks, often against employees of Indian descent. In one call, as described in the lawsuit, he reportedly said, “I’m going to tie up all you f****** Indian towelhead n****** and call immigration.”

A similar allegation of blatant racism is made by another employee in an employment discrimination lawsuit. In August 2020, Aparna Kumar, who led a contract with the Centers for Medicare and Medicaid Services, filed a lawsuit alleging Scott had said, “I got rid of all the dirty Indians and it is safe for white people at Opera again.”

Fahey’s attorney, Brian Graffeo, wrote in an email that the complaint and additional documents “clearly detail the horrid actions our client had to experience on a daily basis. Ms. Fahey’s termination constituted disability discrimination and retaliation for her complaints regarding the discrimination, harassment, and hostile work environment she endured while employed with ElectrifAI and White Oak.”

Despite multiple attempts, Scott did not respond to requests for comment.  White Oak declined to comment.

Financial woes deepen
The $68 million contract that Kumar led with CMS made up the bulk of the company’s business, according to her lawsuit and corroborated by the two people. Essentially, ElectrifAi was responsible for tallying up the number of people in each state that were enrolling in ACA plans.

But the company lost this contract in 2020 after it was reclassified from a large business contract to a small business contract, making ElectrifAi ineligible. As a result, ElectrifAi sought to partner with the new company that had been chosen for the contract, bringing in a fraction of its previous revenue.

In his lawsuit, McGowan noted that ElectifAi hadn’t closed any new business in the fourth quarter of last year, and the people interviewed by MedCity News described a company that faced difficulty in selling any of its supposed AI products.

Other signs point to ElectrifAi’s financial woes. It stopped paying licensing fees for software that it continued to use, according to a lawsuit filed by software company Actian last year. They reached a settlement agreement in January, the terms of which are confidential, according to court documents.

One source said ElectrifAi had been evicted from its New Jersey headquarters on the 11th floor of 10 Exchange Place. The entire 11th floor of the building is currently listed as available for rent, and the company now lists its address as 111 Town Square Place. A broker with Cushman & Wakefield confirmed that ElectrifAi, which was once a tenant, no longer occupies the space.

Despite all of this, Scott appears to still have White Oak’s confidence in that he remains CEO of ElectrifAi.

As for ElectrifAi’s supposed Covid-19 algorithm, it was never ultimately used by any hospital, the two people said, and was quietly shelved.

Photo credit: Feodora Chiosea, Getty Images