The founder of startup Theranos, Elizabeth Holmes, and Ramesh Balwani, the company’s former president, are facing fraud charges for allegedly making false claims about the efficacy of Theranos blood testing.
According to The Guardian, Holmes, 34, who had stepped down as Theranos CEO earlier on Friday appeared before a federal magistrate judge in San Jose, California with Balwani, 53. And both were charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud in a hearing. The pair entered pleas of not guilty, according to prosecutors, released on $500,000 bail and ordered to surrender their passports.
“This indictment alleges a corporate conspiracy to defraud financial investors,” said John Bennett, special FBI agent in charge said in a statement. “This conspiracy misled doctors and patients about the reliability of medical tests that endangered health and lives.”
Fifteen years old Theranos was founded to revolutionize the multibillion-dollar blood testing industry. The firm which promised to have invented a machine that could use a tiny blood sample drawn from a finger stick to conduct hundreds of laboratory test received over $700m from investors after gaining a lustrous media coverage. Therano’s valuation soared to $9bn after the tests kicked off in Walgreens stores in Arizona and California. The investors include venture capital firm DFJ, Oracle co-founder Larry Ellison, media mogul Rupert Murdoch and Walgreens.
In 2015, series of articles from Wall Street Journal revealed that the company was using traditional machines acquired from other companies to run most of its tests allegedly carried out using its Edison machines. Testing results produced by traditional machines were found to be more accurate and reliable than those achieved when Therano’s proprietary devices were used to conduct tests. And a scrutiny from health regulators forced the company into an agreement to reimburse some 76,000 Arizonans who have used its services after retracting two years of its blood tests.
These issues were outlined by the indictment which also alleged that Holmes and Balwani presented Therano’s financial conditions with numerous misrepresentations such as its 2015 revenue projections of $1bn.
“In truth, Holmes and Balwani knew that Theranos had and would generate only modest revenues, roughly a few hundred thousand dollars or so in 2014 and 2015,” the indictment states.
Doctors and patients were also alleged to have been defrauded by the pair by making false claims about the efficacy of blood tests from the company. These representations lured hundreds of patients, in some cases referred by defrauded doctors, into paying or making their medical insurance firms to pay Theranos for blood tests, the indictment further disclosed.
It’s barely three months that Holmes was barred from serving as a director or officer of a public company for 10 years in the course of settling civil fraud charges brought by the US Security and Exchange Commission. Her lawyers turned down requests for comment but Balwani’s attorney, Jeffery Coopersmith said his client had committed no crimes.
Theranos which is on the verge of bankruptcy has laid off most of its workforce. And David Taylor, the firm’s general counsel has been appointed chief executive officer.