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SEC charges Theranos founder Elizabeth Holmes with massive fraud

March 14, 2018

The US Securities and Exchange Commission is charging beleaguered biotech company Theranos, its CEO Elizabeth Holmes, and its former president Ramesh Balwani with what it calls “massive fraud.”

Background: A few years ago, Theranos was an up-and-coming startup out of Silicon Valley with a young, charismatic CEO who wanted to revolutionize the blood testing industry. Investors bought into the idea, and by 2014, Theranos was valued at $9 billion. But in 2015, an investigation by the Wall Street Journal raised concerns about the validity of the company’s testing technology.

Bad blood: Theranos set out to make a cheap, simple test that required only a few drops of blood from a finger prick instead of a needle draw. But there’s little evidence that it actually developed the technology it was marketing, especially after a 2016 government report revealed a host of problems at the company.

The details: On Wednesday, the SEC said Theranos raised more than $700 million from investors through “an elaborate, years-long fraud” by exaggerating or making false statements about its technology, business, and financial performance.

What it means: Theranos and Holmes have agreed to settle the fraud charges. Holmes will pay a $500,000 penalty and will be stripped of control of the company she founded. She also has to return millions of Theranos shares and won’t be able to serve as an executive at a publicly traded company for 10 years.

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