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Saturday, June 16, 2018 8:05:35 AM
Elizabeth Holmes, founder of blood-testing company Theranos, indicted on wire fraud charges
The founder of a company that promises its analyzer can run multiple blood tests with just a few drops of blood has been charged by the SEC with fraud.
By Carolyn Y. Johnson
June 15 at 6:34 PM
Elizabeth Holmes, founder of the blood-testing start-up Theranos, and her former chief operating officer, Ramesh “Sunny” Balwani, were indicted by a federal grand jury Friday on charges of defrauding investors, patients and doctors.
The indictments, on nine counts of wire fraud and two counts of conspiracy to commit wire fraud, complete the company’s fall from Silicon Valley darling to cautionary tale.
Theranos said it would disrupt medicine by selling quick, cheap blood tests directly to consumers, but its promises frayed under scrutiny from several federal agencies and a Wall Street Journal investigation.
Before questions arose about whether the technology worked, Holmes, now 34, led a company valued at $9 billion that was featured on the covers of magazines and backed by a formidable board of elder statesmen and former military leaders.
Balwani, 53, took on various leadership roles within the company and was her boyfriend at the time.
The company claimed it could conduct its tests on just a few drops of blood obtained from a fingerpick, and sold them to consumers through wellness clinics in dozens of Walgreens stores in Arizona and one in California.
The indictment alleges that the pair used marketing, press interviews and financial statements to defraud potential investors on behalf of their company.
“Holmes and Balwani knew that Theranos’ proprietary analyzer had accuracy and reliability problems, performed a limited number of tests, was slower than some competing devices and could not compete with larger, conventional machines in high-throughput, or the simultaneous testing of blood from many patients,” the indictment states.
Federal authorities allege there was a second scheme to defraud doctors and patients, saying “many hundreds of patients paid, or caused their medical insurance companies to pay” for blood tests that were advertised as accurate and reliable.
Holmes, who founded Theranos as a college dropout, ran her company with extreme secrecy, claiming the close hold on data and information was essential because large laboratory testing companies were threatened by her proprietary technology.
But her carefully cultivated image as an innovator fell apart in the face of allegations from federal authorities that she ran sham demonstrations for investors and knew her technology could not produce reliable results but created “false and misleading” advertisements and marketing materials to persuade consumers to buy the firm’s tests in Walgreens.
Holmes stepped down as chief executive of Theranos on Friday, the company announced, shortly before the indictment was released. David Taylor, Theranos’ general counsel, has been appointed chief executive.
“This district, led by Silicon Valley, is at the center of modern technological innovation and entrepreneurial spirit; capital investment makes that possible. .?.?. This office, along with our other law enforcement partners in the Bay Area, will vigorously investigate and prosecute those who do not play by the rules that make Silicon Valley work,” Special Agent in Charge John F. Bennett said in a statement.
“This conspiracy misled doctors and patients about the reliability of medical tests that endangered health and lives.”
Holmes had already settled federal fraud charges by the Securities and Exchange Commission, agreeing to a $500,000 penalty and a 10-year ban on working as an officer or director of a public company. She did not admit or deny the charges in the settlement. Balwani faces those charges in court.
An attorney for Holmes did not immediatelyrespond to a request for comment. Jeffrey Coopersmith, an attorney for Balwani, said his client did not defraud investors or consumers.
“All Mr. Balwani did was put his heart and soul, and millions of dollars of his money, toward changing the face of health care by giving people access to cost-effective blood tests so they could take charge of their own health and monitor changes for signs of disease,” Coopersmith said in a statement.
https://www.washingtonpost.com/business/economy/elizabeth-holmes-founder-of-blood-testing-company-theranos-indicted-on-wire-fraud-federal-authorities-announce/2018/06/15/8779f538-70df-11e8-bd50-b80389a4e569_story.html?noredirect=on&utm_term=.8489bfe1ff36
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