Theranos Founder Elizabeth Holmes Indicted on Conspiracy, Wire Fraud Charges
Elizabeth Holmes was 19 when she founded Theranos in 2003. At its peak, the blood-testing company was valued at $9 billion in 2013 and '14. Since then, the fall of Theranos and Holmes has been precipitous.
The company has faced numerous lawsuits from investors, clients, and customers, accusing it of overselling its testing technology, and Holmes herself has already faced and settled "massive fraud" charges from the Securities and Exchange Commission. Now the Theranos founder and former CEO, along with former President Ramesh "Sunny" Balwani, is facing a grand jury indictment on federal wire fraud charges.
Blood Boom
According to Justice Department, the charges stem from allegations that Holmes and Balwani engaged in separate, multi-million dollar schemes: one to defraud investors, and another to defraud doctors and patients. After reporter John Carreyrou first started tugging at Theranos's loose threads in the Wall Street Journal in 2015, the company's claims of breakthrough advancements in blood testing completely unraveled. The DOJ claims "Holmes and Balwani used advertisements and solicitations to encourage and induce doctors and patients to use Theranos's blood testing laboratory services, even though the defendants knew Theranos was not capable of consistently producing accurate and reliable results for certain blood tests."
The bulk of the company's value centered on its proprietary blood analyzer, called the "Edison," which it boasted could perform over 200 clinical tests using small blood samples drawn from the prick of a finger. The indictment also alleges that Holmes and Balwani knew their claims about the Edison -- including accuracy and reliability, the number of tests it could perform, and its speed -- were false. "This indictment alleges a corporate conspiracy to defraud financial investors," said Special Agent in Charge Bennett. "This conspiracy misled doctors and patients about the reliability of medical tests that endangered health and lives."
Blood Bust
There's not much left of Theranos. Holmes already told the company's few remaining employees they would likely be out of work by last week, and told shareholders that the company could be liquidated by August. And Holmes' personal valuation has plummeted to zero. Still, she and Balwani are looking at two counts of conspiracy to commit wire fraud and nine counts of wire fraud each, charges that carry maximum sentence of 20 years in prison and $250,000 in fines for each count.
Related Resources:
- Theranos Founder Elizabeth Holmes Indicted on Fraud Charges (Fortune)
- Securities Law Basics: Common Types of Securities Wrongs (FindLaw Blotter)
- 'Pharma Bro' Shkreli Convicted of Federal Fraud (FindLaw Blotter)
- White Collar Crime (FindLaw Blotter)