SEC hits Theranos’ Elizabeth Holmes with fraud charges

An SEC investigation found that Theranos, Elizabeth Holmes and Sunny Balwani conducted an "elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business and financial performance." (Matthew Henry)

Elizabeth Holmes’ day of reckoning has finally come—the SEC filed charges against the black-turtlenecked college dropout who sought to turn the blood-testing industry on its head.

The SEC alleged that Holmes and Ramesh “Sunny” Balwani, the company’s former chief operating officer, raised more than $700 million from investors in a yearslong fraud where they exaggerated or told straight-up lies about Theranos’ technology, business and financial performance, the agency said in a statement.

In a settlement with the agency, Holmes did not admit or deny any wrongdoing, but she did give up voting control of Theranos, pay a $500,000 penalty and agree to a 10-year ban from serving as an officer or director in a public company. The SEC is still pursuing civil securities fraud charges against Balwani in California, The Wall Street Journal reported.


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Once valued at $9 billion, Theranos rose to prominence due to its now-debunked fingerprick blood-testing technology. The company claimed that it could perform lab tests with just a few drops of blood and teamed up with Walgreens in 2013 to offer its tests in the latter’s stores. But the drugstore giant jumped the gun on the deal. It did not fully validate Theranos’ tech and ended up losing about $50 million by investing in Theranos, quitting the partnership and suing the startup for misrepresenting the state of its technology.

The pair eventually settled the $140M breach-of-contract suit last August, but it was just the latest in a series of settlements for Theranos. In April 2017, it settled with the Arizona Attorney General to fork over $4.65 million to Arizona residents who had paid for the company’s blood tests. And a month later, Theranos settled two lawsuits with its San Francisco’s Partner Fund Management, which invested $96.1 million in the company in 2014.

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And that’s just one side of the scandal—after a Wall Street Journal report highlighted problems with the company’s proprietary blood-testing tech in late 2015, federal agencies started investigating its Newark, California lab.

The Centers for Medicare & Medicaid Services handed down sanctions in July 2016, including a ban on Holmes owning or operating the Newark lab for two years. A month later, at Theranos’ first—and much anticipated—presentation at a scientific conference, Holmes unveiled a totally new tabletop blood-testing device instead of detailing the technology behind the company’s existing product.

“Theranos, Holmes and Balwani made numerous false and misleading statements in investor presentations, product demonstrations and media articles by which they deceived investors into believing that its key product—a portable blood analyzer—could conduct comprehensive blood tests from finger drops of blood,” the SEC complaints say. But Theranos’ device was only able to analyze a small number of tests and the company did the rest of the tests on “modified and industry-standard commercial analyzers manufactured by others,” the SEC said.

“The Theranos story is an important lesson for Silicon Valley,” said Jina Choi, director of the SEC’s San Francisco Regional Office, in the statement. “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.”

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