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SEC alleges widespread fraud by Theranos

Founder to pay $500,000 fine, face 10-year ban

Bloomberg

Theranos founder Elizabeth Holmes has agreed to a $500,000 fine and a 10-year ban on serving as an officer or director of a public company. She will relinquish her majority voting control of the company and give up significant equity.
Bloomberg Theranos founder Elizabeth Holmes has agreed to a $500,000 fine and a 10-year ban on serving as an officer or director of a public company. She will relinquish her majority voting control of the company and give up significant equity.

Elizabeth Holmes, a college dropout turned CEO, built her upstart blood-testing start-up Theranos into a $9 billion Silicon Valley darling with all the trappings of success.

A rare female founder in male-dominated Silicon Valley, Holmes wove a compelling personal story: a 19-year-old wunderkind whose fear of needles drove her to invent a rapid blood-analyzing technology that required just a few drops from a finger prick.

Over the years, Holmes, now 34, persuaded some of the most powerful men in Washington, D.C., to serve on her company’s board — drafting former secretaries of state George Shultz and Henry Kissinger and Marine Gen. Jim Mattis as advisers.

Their reputations lent credibility, connections and heft to a young company that promised to upend medicine by making blood tests cheap, fast and accessible.

That story unraveled Wednesday as the Securities and Exchange Commission alleged a breathtaking scale of deception in the story Holmes and former company president Ramesh “Sunny” Balwani told to investors.

The SEC accused Holmes, Theranos and Balwani of an “elaborate, years-long fraud” that included misleading product demonstrations, false reassurances about regulators, incorrect claims that the technology had been deployed on the battlefield in Afghanistan and gross exaggerations about the company’s financial status.

In detailed complaints, the SEC alleges that investors sank more than $700 million into Theranos, swayed by exaggerations and misrepresentations of the proprietary blood-testing technology at the core of the business.

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Holmes and Theranos have not admitted or denied the allegations, but they have resolved the case. As part of Holmes’ settlement, she agreed to a $500,000 fine and a 10-year ban on serving as an officer or director of a public company. She will relinquish her majority voting control of the company and give up significant equity.

Theranos has been in free fall since 2015, when a Wall Street Journal investigation revealed problems at the company. Regulators uncovered deficiencies and banned Holmes from owning or operating a laboratory for two years.

A lawyer for Holmes declined to comment. Balwani did not agree on a settlement and will face the SEC in court.

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