The Securities and Exchange Commission announced today that they have charged Theranos, Elizabeth Holmes, the company’s 34-year-old former CEO and founder, and ex-president Ramesh “Sunny” Balwani, with “massive fraud.”
According to the SEC, those charged engaged in “elaborate, years-long fraud” to raise over $700 million through exaggerated or false statements about the company’s technology, business dealings and financial performance.
It isn’t clear if Balwani has responded to the fraud case yet and his lawyer could not be immediately reached for comment. But both Theranos and Holmes agreed to settle the charges against them.
Holmes, whose face became synonymous with the company, agreed to give up majority voting control over the company, reduced her equity shares and agreed to pay a $500,000 penalty. She’s also prevented from serving as an officer or director of a public company for the next 10 years.
The privately-held company was once hailed by Silicon Valley for its apparent medical breakthrough — a single-finger pinprick that they claimed could deliver the results of over 200 blood tests. Once valued at $9 billion, Theranos established itself as a proverbial unicorn in medical technology. And everyone from the U.S. government to Walgreens, seemed to want in.
According to the SEC, Theranos execs even claimed that their, “products were deployed by the U.S. Department of Defense on the battlefield in Afghanistan and on medevac helicopters and that the company would generate more than $100 million in revenue in 2014.” In reality, the DOD never used those products, and those 2014 earnings were exaggerated tenfold.
Things went south for the company after the regulatory issues, like failed inspections, started cropping up. The Wall Street Journal also published a months-long investigation into their products back in 2015, which alleged that their product was faulty and didn’t live up to the hype. Since then, Holmes and the company have been under scrutiny for their fundraising actions and claims. The company has also settled numerous outside cases, including lawsuits from the Center for Medicare and Medicaid Services, Walgreens and the Partner Management Fund, a major investor in the company.
“Investors are entitled to nothing less than complete truth and candor from companies and their executives,” Steven Peikin, Co-Director of the SEC’s Enforcement Division, said in the press release. “The charges against Theranos, Holmes, and Balwani make clear that there is no exemption from the anti-fraud provisions of the federal securities laws simply because a company is non-public, development-stage, or the subject of exuberant media attention.”
In response to the SEC’s announcement, Theranos said that the company’s independent directors were, “pleased to be bringing this matter to a close and looks forward to advancing its technology.” They also noted that neither the company nor Holmes admitted or denied any wrongdoing.