Former Theranos biotech star indicted on fraud charges

Former Theranos biotech star indicted on fraud charges

Troy Powers
June 16, 2018

A federal grand jury has indicted Theranos founder Elizabeth Holmes and Ramesh "Sunny" Balwani for their alleged roles in a multi-million-dollar scheme to defraud investors, doctors and patients.

Theranos announced Friday that Holmes was resigning as CEO.

The indictment alleges that the pair used marketing, press interviews and financial statements to defraud potential investors on behalf of their company. The company was forced to invalidate hundreds of thousands of blood tests performed on patients, and it eventually exited the consumer blood-testing business after the Centers for Medicare & Medicaid Services found deficiencies at the company's laboratory that the agency deemed life-threatening. That claim won backing of some of the country's largest tech companies and biggest political names, and turned Ms. Holmes into a cult hero in the tech world, particularly as a woman at the head of a Silicon Valley company.

The criminal charges come three months after Holmes was charge in a civil suit by the Securities and Exchange Commission with "massive fraud".

Holmes agreed in March to settle the SEC charges, under which she was barred from serving as an officer or director of a public company for 10 years. The company had claimed to have developed revolutionary blood-testing technology that could use as little as a single drop of blood to generate more accurate and much faster results than traditional testing, at a lower cost.

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Lawyers for Holmes and Balwani didn't immediately respond to requests for comment.

Holmes and Balwani also told investors that Theranos had used its own system to conduct tests on patients, when it had actually bought third-party analyzers and used those for patient testing. Balwani, who worked at Theranos from September of 2009 through 2016, had also served as chief operating officer and was a member of the board.

Holmes said Theranos had discovered a new way of doing blood testing, one able to do dozens of tests with just a prick of a finger and few droplets of blood. They also made false and misleading statements to the media, according to the indictment.

Wire fraud charges stem from the fact that Holmes and Balwani purchased ads across state lines, meant to promote the purchase of Theranos blood tests at Walgreens stores in California and Arizona. But her net worth was revised down to nothing after Wall Street Journal investigative reporter John Carreyrou started digging into the technology behind her blood testing startup.