Theranos CEO, COO Indicted on Fraud Charges for Unreliable Testing
Elizabeth Holmes, the CEO of Theranos, a blood-testing company, was indicted on wire fraud charges. Also indicted was Ramesh “Sunny” Balwani, a Theranos employee who had worked as the company’s president and chief operating officer.
Holmes founded Theranos at the age of 19. She said throughout the years she had a vision to change healthcare by providing patients with their own diagnostic information through the blood testing devices. In 2015, Forbes named Holmes as the youngest self-made female billionaire in the world based on the $9 billion valuation of Theranos. Unfortunately for Holmes and her vision, the devices never worked as well as the company hoped.
Holmes and Balwani knew the company’s proprietary blood analyzer couldn’t consistently produce accurate and reliable results for certain blood tests, yet they claimed it was more accurate and faster than traditional tests, according to the Department of Justice (DOJ). The indictment also indicted Theranos knew its claims regarding an assortment of blood tests its Edison machine could conduct from one drop of blood were false. The device “was not capable of consistently producing accurate and reliable results for certain blood tests, including the tests for calcium, chloride, potassium, bicarbonate, HIV, Hba1C, hCG, and sodium.”
Prosecutors also alleged the two misled doctors and investors, as well as patients who purchased the tests at Walgreens. The criminal charges include two counts of conspiracy to commit wire fraud and nine counts of wire fraud. The DOJ said “the defendants delivered to doctors and patients blood results that were inaccurate, unreliable, and improperly validated. The defendants also delivered to doctors and patients blood test results from which critical results were improperly removed.”
“For example, allegedly, Holmes and Balwani knew that the analyzer, in truth, had accuracy and reliability problems, performed a limited number of tests, was slower than some competing devices, and, in some respects, could not compete with existing, more conventional machines,” according to court documents.
The inaccuracies of the Theranos equipment have already been the subject of a number of lawsuits against the company. In March, Holmes settled civil fraud charges filed by the Securities and Exchange Commission. She did not admit wrongdoing.
The SEC had claimed Holmes raised more than $700 million from investors “through an elaborate, years-long fraud.” The SEC also accused Balwani of misleading investors. Balwani’s attorney Jeffrey Coopersmith, a partner with Davis Wright Tremaine, said his client is innocent and “looks forward to clearing his name at trial.”
He added, “All Mr. Balwani did was put his heart and soul, and millions of dollars of his money, toward changing the face of healthcare by giving people access to cost-effective blood tests so they could take charge of their own health and monitor changes for signs of disease.”
If convicted Holmes and Balwani face a maximum sentence of twenty years in prison, and a fine of $250,000 in addition to restitution for each count of wire fraud and for each conspiracy count. Both Balwani and Holmes appeared in court before for their initial appearances and entered pleas of not guilty.