Theranos Founder Elizabeth Holmes Charged With Wire Fraud

Ivan Schwartz
June 16, 2018

Federal prosecutors filed criminal charges against Theranos Inc. founder Elizabeth Holmes and the blood-testing company's former No. 2 executive, alleging that they defrauded investors out of hundreds of millions of dollars and also defrauded doctors and patients. Holmes was once considered a rising star, but on Friday afternoon, she appeared in U.S. District Court to face federal charges of wire fraud alongside Balwani.

The indictment accuses Mr. Holmes and Mr. Balwani of defrauding investors with claims that they would generate $100 million in revenue in 2014 and $1 billion in 2015.

Theranos announced Friday that Holmes was resigning as CEO.

"This conspiracy misled doctors and patients about the reliability of medical tests that endangered health and lives", FBI Special Agent in Charge John Bennett said in a statement. But the company remained feisty as recently as three weeks ago, when it issued a rebuttal to a "60 Minutes" story timed to coincide with the release of Carreyrou's book, which depicted rampant unethical behavior by Holmes and Balwani. In March, the SEC charged Holmes and Theranos with "massive fraud". She was also barred from serving as an officer or director of a public company for 10 years.

Holmes, a Stanford University dropout once billed as the "next Steve Jobs", founded Theranos as a blood-testing company.

Based on "misrepresentations and omissions" by Holmes and Balwani, many patients paid for blood tests with results that were "inaccurate, unreliable, and improperly validated." .

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Peter Henning, a former senior attorney in the enforcement division of the SEC, said Theranos' statement came close to breaking a stipulation in its agreement with the SEC that prohibits it from denying the agency's allegations.

Acting U.S. Attorney Alex G. Tse portrayed the indictments against Holmes and Balwani as a warning against Silicon Valley companies who use deceit in their business dealings.

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.

The Wall Street Journal reported in April that Theranos would cut its workforce "from about 125 employees to two dozen or fewer", according to sources familiar with the matter. He did not defraud Theranos investors, who were among the most sophisticated in the world.

Regulators claim that at the same time, Holmes was using the company's glowing profile in the media to raise more money.

Other reports by GizPress

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