Theranos founder, her Indian-American boyfriend charged with $700m fraud
US Federal regulators charged the blood-testing company Theranos, its Founder and CEO Elizabeth Holmes, and her Indian-American boyfriend-turned-Theranos President Ramesh Sunny Balwani with $700m fraud. The Securities and Exchange Commission (SEC) alleged that Theranos, Holmes, and Balwani falsely claimed that its key product, a portable blood analyzer, could conduct comprehensive blood tests from finger drops of blood, revolutionizing the blood testing industry. Here's more.
Holmes and Balwani deceived investors about firm's technology
The SEC alleged Holmes (34) and Balwani (52) deceived investors about the firm's technology. It also said the firm had falsely claimed that the US Department of Defense deployed Theranos's products in Afghanistan and the company would generate over $100m in revenue in 2014. "Theranos and Holmes neither admitted nor denied the allegations and have agreed to settle the fraud charges," SEC said.
Theranos's analyzer could do only a small number of tests
The SEC said that Theranos's proprietary analyzer could complete only a small number of tests, and the company used analyzers manufactured by others to conduct the majority of patient tests. The agency also stated that Theranos's technology was never deployed by the US Department of Defense and the firm generated a little more than $100,000 in revenue from operations in 2014.
As a penalty, Holmes agreed to pay $500,000
Holmes has agreed to pay a $500,000 penalty. She was barred from serving as an officer or director of a public company for ten years. She will also return remaining 18.9m shares she obtained during the fraud and also relinquish her voting control of Theranos. If Theranos is acquired, Holmes will not profit from her ownership until over $750m is returned to defrauded investors.
Who is Elizabeth Holmes's boyfriend?
Ramesh Sunny Balwani, who hailed from California, was the President and COO of Theranos from September 2009 to May 2016. In 2009, as Theranos was on the verge of running out of money, Holmes turned to her then-boyfriend Balwani, who guaranteed a line of credit for the company. Balwani joined the company and became its President and COO that same year, the SEC said.
An important lesson for Silicon Valley
Director of the SEC's San Francisco Regional Office Jina Choi said that the Theranos story is an "important lesson" for Silicon Valley where innovators who seek to "revolutionize and disrupt" an industry.
