USA charges Theranos founder Elizabeth Holmes with fraud

The SEC just charged Theranos founder Elizabeth Holmes and former prez Sunny Balwani with massive “years-long fraud”		
		
	Connie Loizos

       @	   
   	8 hours

The SEC just charged Theranos founder Elizabeth Holmes and former prez Sunny Balwani with massive “years-long fraud” Connie Loizos @ 8 hours

In a statement, the company said it's happy to be moving on from the incident.

Holmes agreed to pay a United States dollars 500,000 penalty, be barred from serving as an officer or director of a public company for 10 years, return the remaining 18.9 million shares that she obtained during the fraud, and relinquish her voting control of Theranos.

The Securities and Exchange Commission said Elizabeth Holmes and Theranos deceived investors about the firm's technology.

In reality, Theranos's analyzer had a far more limited application than it led investors to believe, and the company fudged results for years by using commerical analyzers from other companies to secretly run tests.

But, as has been painfully detailed, Theranos' technology never worked properly.

At the centre of Theranos' mystique was its "Edison" machine, which the company claimed could test for a variety of diseases through only a few drops of blood from a person's finger. The story raised concerns about the accuracy of Theranos' blood-testing technology, which put patients at risk of having conditions either misdiagnosed or ignored.

Past year the company settled with the Centers for Medicare and Medicaid Services, which is the government agency that oversees the regulation of blood testing labs. That year, the company made about $100,000 in revenue.

Reporter John Carreyrou, troubled by the company's secrecy in a New Yorker article, investigated the company's claims.

She'll give up financial and voting control of the company. The SEC lawsuit [PDF] provides some details.

Holmes, 34, of Los Altos Hills, founded Palo Alto-based Theranos in 2003 after dropping out of Stanford University and has been its chief executive officer. Holmes, the youngest self-made female billionaire after investors valued Theranos at $9 billion, soon came under investigation by regulators.


Holmes settled with one of the startup's largest investors Partner Fund Management in May 2017, giving away her shares to some of the "most significant shareholders" as part of the settlement.

Both Theranos and Holmes agreed to settle the fraud charges, the SEC said.

Since then, the company has become a cautionary tale for healthcare investors.

Even the SEC recognizes the saga as a lesson for the hype-driven tech industry. Those statements "were important to potential investors because these relationships lent legitimacy to Theranos's business and its proprietary analyzer", the SEC alleges. Theranos placed its "miniLabs" inside facilities to imply that they were used in medical analysis during tours for investors.

Press queries were met with the best public relations efforts money can buy. It was sanctioned by regulators at the Centers for Medicare and Medicaid Services, which banned Holmes from running a lab company for two years.

But in the end, the sham was simply too big to hide. Holmes talked about bringing "equality" to the health care sector.

A court must approve the settlement terms, the SEC said.

The binders also included purported endorsements from drug companies - but that weren't in fact written by those companies, according to the complaint.

In a separate complaint (PDF), the SEC also accused Balwani of participating in the fraud scheme.

The US Attorney's office told us that it would not deny or confirm an investigation into Theranos as a matter of policy.

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