WSJ: Theranos to trade shares for vows not to sue

Elizabeth Holmes
Theranos' offer comes after a major investor has sued the company for securities fraud.

Theranos’ board has approved a deal to offer additional shares to investors who promise not to sue the company, sources told The Wall Street Journal. The deal has not been publicly disclosed.

The shares will come from CEO Elizabeth Holmes’ personal stake, which would see her surrendering her majority ownership of the embattled blood-testing startup, said people familiar with the matter, as quoted by the WSJ.

The deal comes after months of negotiating and covers investors who took part in Theranos’ latest funding rounds. It does not include investors from earlier rounds, the WSJ reported. While the board OK’d the agreement in February, investors are still looking it over. Most of them have indicated they will accept the deal, sources said.

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Parter Fund Management, which sued the company in October for securities fraud, is not participating in the deal. The San Francisco-based hedge fund backed Theranos in 2014 to the tune of $96 million. The suit claims Theranos participated in securities fraud, negligent misrepresentations and violations of the Delaware deceptive trade practices act. Theranos said the suit was “baseless” and “without merit.”

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In a separate agreement, the company will buy back the shares bought by Rupert Murdoch, sources said. While the media tycoon forked over about $125 million for the shares in 2015, Theranos will pay him a “nominal amount.” One person familiar with the matter told the WSJ that the amount was $1.

Once valued at $9 billion, Theranos touted its fingerprick tests, which could accurately perform lab tests using a few drops of blood. But a WSJ report exposed accuracy issues with Theranos’ tech in October 2015, which set the ball rolling for Theranos’ downfall.

Theranos has thrown out test results and corrected or voided thousands of other test reports. After inspecting the company’s Newark, California, lab, the Centers for Medicare & Medicaid services has handed down sanctions, which include banning Holmes from owning or operating a lab for two years. And Walgreens, Theranos’ partner and early validator, unceremoniously exited their partnership and filed a $140 million suit for breach of contract.

The company recently abandoned its fingerprick blood testing technology, laying off about 340 people and shutting down its labs and wellness centers. It has pivoted toward developing its tabletop blood-testing system, which industry watchers noted could keep Theranos, whose owners and operators are banned from operating a lab, alive.

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