Elizabeth Holmes, founder and chief executive of the blood-testing company Theranos, has been charged with an “elaborate, years-long fraud” by the Securities and Exchange Commission in which she and former company president Ramesh “Sunny” Balwani “allegedly deceived investors into believing that its key product – a portable blood analyzer – could conduct comprehensive blood tests from finger drops of blood,” the SEC said.
Theranos and Holmes have agreed to resolve the charges against them, but have not admitted nor denied the allegations. Holmes is ceding her voting control of the company and reducing her equity stake in the company.
Theranos, a blood-testing startup that promised to revolutionize consumers’ access to their medical information, was a Silicon Valley darling once valued at $9 billion. Holmes had the perfect backstory: a college dropout-turned-chief executive who had assembled a company board filled with powerful ex-government and military leaders and wanted to change the world.
The company fell from grace in a snarl of regulatory problems and the revelation that its proprietary technology was not being used in its blood tests.
The SEC also alleges that Theranos, Holmes and Balwani claimed that their products were being used by the Department of Defense on the battlefield in Afghanistan and on medevac helicopters. That technology was never deployed by the Department of Defense, even though Gen. James Mattis, who then led the U.S. Central Command, personally pushed for it to be deployed in the field. Regulatory officials in the military flagged problems with Theranos’ approach. Mattis later joined Theranos’ board – from which he resigned to become Defense Secretary.
“The Theranos story is an important lesson for Silicon Valley,” Jina Choi, Director of the SEC’s San Francisco Regional Office, said in a 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.”