Tech

US Files Criminal Charges Against Theranos's Elizabeth Holmes, Ramesh Balwani

Written by admin

Theranos founder and board chair Elizabeth Holmes and former Chief Operating Officer Sunny Balwani addressing the company’s staff in 2015 at the company’s then-headquarters in Palo Alto, Calif.

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.

The indictments of Ms. Holmes and Ramesh “Sunny” Balwani, Theranos’s former president and chief operating officer who was also Ms. Holmes’s boyfriend, are the culmination of a 2½-year investigation by the U.S. attorney’s office in San Francisco, sparked by articles in The Wall Street Journal that raised questions about the company’s technology and practices.

Ms. Holmes, 34 years old, and Mr. Balwani, 53, were charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud in an indictment handed up Thursday and unsealed Friday.

“This indictment alleges a corporate conspiracy to defraud financial investors,” said Special Agent in Charge

John F. Bennett

of the Federal Bureau of Investigation in San Francisco. “More egregiously, this conspiracy misled doctors and patients about the reliability of medical tests that endangered health and lives.”

Before the charges were filed, Theranos announced that Ms. Holmes had stepped down as chief executive and that

David Taylor,

the company’s general counsel, has been appointed CEO and general counsel. Ms. Holmes will remain as founder and board chair, the company said.

Coming three months after civil fraud charges filed by the Securities and Exchange Commission against Ms. Holmes and Mr. Balwani, the criminal charges are a warning shot for Silicon Valley. As money has gushed into the Valley’s ecosystem in recent years, hundreds of private tech startups valued at more than $1 billion have sprouted, embracing a culture of disruption of incumbent industries and a cavalier attitude toward regulations.

In the case of Theranos, the industry Ms. Holmes sought to disrupt was the blood-testing business. At the height of her fame, the Stanford dropout claimed to have invented groundbreaking new technology that could run the full range of laboratory tests on just a drop or two of blood pricked from a finger.

On the strength of her unproven claims, Theranos rolled out its vaunted finger-stick blood tests in Walgreens stores in California and Arizona and rocketed to a valuation of more than $9 billion, making Ms. Holmes a billionaire and media celebrity. Her bold talk and black turtlenecks drew comparisons to

Steve Jobs.

But as the Journal revealed in a series of articles beginning in October 2015, Theranos’s blood-testing device was unreliable and the company used it for just a fraction of the more than 240 tests it offered to consumers. Behind the scenes, it performed the vast majority of the tests with commercial analyzers purchased from other companies.

Moreover, Theranos modified some of those commercial analyzers in ways that neither their manufacturer nor the federal health agency overseeing Theranos had authorized. The modifications, including diluting the tiny finger-stick samples to create more volume, led to inaccurate test results, according to former Theranos employees.

Prosecutors alleged that Ms. Holmes and Mr. Balwani “knew that many of their representations about the analyzer were false.” They alleged that the two executives “knew that the analyzer, in truth, had accuracy and reliability problems, performed a limited number of tests, was slower than some competing devices, and, in some respects, could not compete with existing, more conventional machines”

Following pressure from federal health regulators, Theranos voided or corrected nearly a million blood-test results. It also agreed to reimburse the 76,000 Arizonans who used its blood-testing services.

Theranos is now on the verge of liquidation. The company’s headcount is down to two-dozen employees and Ms. Holmes told investors in a recent email that the private equity firm Fortress Investment Group was likely to seize its assets as soon as late July. Fortress loaned Theranos $65 million last year to keep it afloat.

Related Video

Wall Street Journal investigative reporter John Carreyrou recounts some of the more unusual experiences he had while uncovering the story of Theranos's business practices.

Theranos’s rise and fall has become a symbol of the excesses of the current technology boom, and the company exacted a painful financial and personal toll. A British biochemist who worked at Theranos for eight years committed suicide in 2013 after becoming distraught by its culture of fear and secrecy and its lack of progress with its technology, according to his widow. Tyler Shultz, a grandson of former Secretary of State

George Shultz

and the first employee to blow the whistle to a state regulator about what he saw as troubling practices, became estranged from his grandfather, a board member.

Theranos’s investors, most of whom poured money into the company after its commercial rollout in Walgreens stores in late 2013, have collectively lost nearly $1 billion. They include the Waltons, heirs to

Walmart
Inc.

founder

Sam Walton,

media mogul

Rupert Murdoch,

Atlanta’s Cox family and the family of

Betsy DeVos,

the Secretary of Education. Each invested more than $100 million in Theranos—investments that are now worthless.

Other investors facing big losses include Mexican tycoon

Carlos Slim,

the scion of a Greek shipping fortune and members of a South African diamond dynasty, according to documents Theranos provided to plaintiffs who sued it in federal court in California for securities fraud.

Write to John Carreyrou at john.carreyrou@wsj.com

Let’s block ads! (Why?)


Source link

About the author

admin

Leave a Comment