The Securities and Exchange Commission (SEC) has charged the founder of tech start-up Theranos with raising more than $700m (£500m) from investors through what the US regulator called ‘an elaborate, years-long fraud’ in which they made false statements about the company’s technology, business, and financial performance
Theranos claimed to have developed a portable blood analyser that could conduct comprehensive blood tests from finger drops of blood, revolutionising the blood testing industry. Its founder and CEO Elizabeth Holmes was named the world's youngest self-made female billionaire, worth an estimated $4.5bn in 2015 according to Forbes, while the company signed distribution deals with the US pharmacy chain Walgreens and had Henry Kissinger on its board.
The SEC’s complaint alleges that both the company, Holmes, and Theranos’ former president Ramesh ‘Sunny’ Balwani made numerous false and misleading statements in investor presentations, product demonstrations, and media articles. In reality, Theranos’ proprietary analyser could complete only a small number of tests, and the company conducted the vast majority of patient tests on modified and industry-standard commercial analysers manufactured by others.
The complaints further charge that Theranos, Holmes, and Balwani claimed that Theranos’ products were deployed by the US Department of Defense on the battlefield in Afghanistan and on medevac helicopters and that the company would generate more than $100m in revenue in 2014. In truth, Theranos’ technology was never deployed by the department and generated a little more than $100,000 in revenue from operations in 2014.
In addition to paying a $500,000 penalty, Holmes has agreed to give up majority voting control over the company, as well as to a reduction of her equity which, combined with shares she previously returned, materially reduces her equity stake.
Jina Choi, director of the SEC’s San Francisco regional office, said: ‘The Theranos story is an important lesson for Silicon Valley. Innovators who seek to revolutionize and disrupt an industry must tell investors the truth about what their technology can do today, not just what they hope it might do someday.’
Theranos and Holmes neither admitted nor denied the allegations in the SEC’s complaint. The SEC will litigate its claims against Balwani in federal district court in the Northern District of California.
Report by Pat Sweet
