Risk & Compliance

Theranos Founder Accused of ‘Elaborate’ Fraud

Elizabeth Holmes agrees to give up control of Theranos to settle SEC charges that her promises to investors about its blood-testing technology were...
Matthew HellerMarch 15, 2018

Theranos founder and CEO Elizabeth Holmes has agreed to give up control of the diagnostics company to settle charges that her promise to revolutionize blood testing was an “elaborate, years-long fraud.”

In what USA Today called a “downbeat coda to a once high-flying Silicon Valley startup,” the U.S. Securities and Exchange Commission on Wednesday accused Holmes and Ramesh Balwani, Theranos’ former president, of exaggerating or making false statements about the company’s blood-testing technology, business, and financial performance to raise more than $700 million from investors.

Investors, the SEC said in a civil complaint, were duped into believing that Theranos’ Minilab portable blood analyzer could conduct comprehensive blood tests from a drop of blood, when in fact it could only complete a small number of tests and Theranos would send out tests the Minilab couldn’t do to third-party laboratories.

As part of a settlement with the SEC, Holmes agreed to pay a $500,000 fine and relinquish her voting control of Theranos. The commission will litigate its claims against Balwani.

Elizabeth Holmes

“The Theranos story is an important lesson for Silicon Valley,” Jina Choi, director of the SEC’s San Francisco Regional Office, said in a news release. “Innovators who seek to revolutionize and disrupt an industry must tell investors the truth about what their technology can do today, not just what they hope it might do someday.”

Theranos, which Holmes founded in 2003 after dropping out of Stanford University, was once valued at as much as $9 billion, impressing investors with a technology that appeared to offer a cheaper, more efficient alternative to traditional blood tests.

But according to the SEC, Theranos’ proprietary blood analyzer “performed only approximately 12 tests of the over 200 tests on Theranos’ published patient testing menu” and from Theranos’ retail launch in September 2013 to the time it closed its clinical laboratories in 2016, the company “never used its miniLab for patient testing in its clinical laboratory.”

The SEC also said Holmes falsely stated to an investor that Theranos had net revenues of $108 million in 2014 when it actually recorded little more than $100,000.

Photo: Max Morse for TechCrunch, Wikimedia Commons, CC BY 2.0