Theranos founder Elizabeth Holmes, who promised to revolutionize blood testing, has been charged by the SEC with a “massive fraud” involving more than $700 million.
Former president Ramesh “Sunny” Balwani was also charged. The two raised money from investors “through an elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance,” the SEC said Wednesday.
Theranos and Holmes agreed to resolve the claims against them, the SEC said. Holmes will give up control of the company and much of her stake in it. The SEC said it would take its case against Balwani to federal court in San Francisco.
Theranos is a Silicon Valley startup once valued at as much as $9 billion. It was formed in 2003 to create cheaper, more efficient alternatives to traditional medical tests.
But it’s been rattled by controversy following a 2015 Wall Street Journal report that questioned its technology and testing methods. The company has since voided two years of blood tests, faced federal probes and pivoted away from blood testing.
Elizabeth Holmes declined to comment through her attorney. A lawyer for Balwani did not immediately respond to request for comment.
Theranos’ independent directors issued a statement, saying “the company is pleased to be bringing this matter to a close and looks forward to advancing its technology.”
According to the complaint against Theranos and Holmes, she and Balwani knew that its proprietary analyzer could perform only 12 of the 200 tests it published on its patient testing menu, something the Wall Street Journal hinted at in its first expose on the company.
The SEC said Theranos misled partners about its technology, and it allegedly used modified third-party machinery instead of its own to process some tests.
Theranos compiled a binder for investors that included reports on clinical trials it said it had performed with pharmaceutical companies. But only one of the reports was co-written with a pharmaceutical client, according to the complaint. Two were written by Theranos employees.
Moreover, Theranos and Holmes made “false and misleading statements” in press accounts to bolster the startup’s profile.
It then allegedly used those articles to generate financial interest. “In some instances, she and Theranos provided some of the articles containing untrue or misleading statements to potential investors,” the complaint states.