Theranos and Elizabeth Holmes Charged with Fraud

The Securities and Exchange Commission on Wednesday charged Theranos and CEO Elizabeth Holmes with fraud, capping off a remarkable downfall for a once high-flying company that promised to revolutionize the blood testing industry but instead became a parable for Silicon Valley hype and hubris.

The SEC’s complaint alleges that the privately held company deceived investors by exaggerating or speaking falsely about what its technology could do. While the company told investors it could provide quick, accurate medical test results from just a few drops of blood pricked from a finger, it was in fact running most of its tests on machines manufactured by other companies. Theranos also falsely told investors that its products were used by the Department of Defense and that the company would bring in a thousand times more revenue in 2014 than it actually did, the SEC alleged. These and other deceptions were first reported in a series of investigative stories by the Wall Street Journal’s John Carreyrou.

Both Holmes and her company have agreed to settle the cases, neither admitting nor denying the SEC’s allegations. Holmes, the charismatic young Stanford dropout who once adorned the cover of magazines in Steve Jobs-esque turtlenecks, must pay a $500,000 penalty, give up voting control of the company, return the shares she obtained during the alleged fraud, and cannot be part of the leadership of a public company for a decade.

The SEC separately charged the company’s former president and No. 2 executive, Sunny Balwani, in a case that will be litigated in federal court in California.

In 2014, the Silicon Valley upstart reached a valuation of $9 billion, the most of any venture-backed company working in health care. But in June 2016, Forbes estimated that its value had fallen to close to zero. The company announced later that summer that it was pivoting to developing a “MiniLab” to carry out a variety of tests in different locations.

Theranos released a statement on Wednesday quoting its independent directors as saying that the company “is pleased to be bringing this matter to a close and looks forward to advancing its technology.”

Republished with permission from STAT. This article originally appeared on March 14, 2018
https://www.scientificamerican.com/article/theranos-and-elizabeth-holmes-charged-with-fraud/
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