Theranos founder Elizabeth Holmes charged with criminal fraud

  • Ex-president of blood-testing startup also charged
  • Pair appear in federal court hours after Holmes quits as CEO

Elizabeth Holmes, the founder of the startup Theranos, and the former company president, Ramesh Balwani, have been criminally charged with fraud for allegedly making false claims about the effectiveness of the company’s blood testing.

The pair appeared before the US district court in San Jose on Friday, hours after Holmes stepped down as CEO of the company, and were charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud. Both were released on $500,000 bail and ordered to surrender their passports.

“This indictment alleges a corporate conspiracy to defraud financial investors,” said the FBI special agent John Bennett. “This conspiracy misled doctors and patients about the reliability of medical tests that endangered health and lives.”

Theranos was founded in 2003 with the goal of revolutionising blood testing. It received glowing media coverage and raised more than $700m from investors on the back of the promise that it had invented a machine that could conduct hundreds of laboratory tests from a single finger-prick of blood. The tests were rolled out in Walgreens stores in California and Arizona and the company’s valuation soared to $9bn.

However, a series of Wall Street Journal articles in 2015 revealed that most of the tests Theranos claimed to be doing with its Edison machines were being carried out by traditional machines bought from other companies. When the company’s proprietary devices were used for testing, the results were found to be less reliable and accurate than those produced by traditional machines. After scrutiny from health regulators, Theranos retracted two years of blood tests and agreed to reimburse 76,000 Arizonans who used its services.

The indictment outlines these issues as well as alleged problems relating to the way Theranos presented its business to investors, including ambitious revenue projections of $1bn in 2015.

“In truth, Holmes and Balwani knew that Theranos had and would generate only modest revenues, roughly a few hundred thousand dollars or so in 2014 and 2015,” states the indictment.

It also alleges that the pair defrauded doctors and patients by making false claims about the effectiveness of Theranos’s blood tests, including those for calcium, potassium, HIV and diabetes.

“Based on these representations, many hundreds of patients paid or caused their medical insurance companies to pay Theranos for blood tests and test results, sometimes following referrals from their defrauded doctors,” the indictment states.

The criminal charges come three months after Holmes was charge in a civil suit by the Securities and Exchange Commission with “massive fraud”. Theranos and Holmes agreed to settle the charges without admitting or denying any wrongdoing. She paid a $500,000 penalty, returned millions of shares to the company and relinquished her company voting power under the terms of the settlement. She was also banned from serving as an officer or director of a public company for 10 years.

The company has laid off most of its workforce and is on the brink of bankruptcy.

The general counsel David Taylor has been appointed chief executive officer. Holmes will remain chairman of Theranos’s board, the company said.


Olivia Solon in San Francisco

The GuardianTramp

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