SEC Charges Theranos CEO Elizabeth Holmes With Fraud

SEC Charges Theranos CEO Elizabeth Holmes With Fraud – WSJ

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Theranos founder Elizabeth Holmes, shown in 2015, neither admitted nor denied wrongdoing as part of her settlement with the SEC.
Brendan McDermid/Reuters

Silicon Valley’s first female billionaire startup founder gives up control of her company as part of settlement with regulators

Theranos founder Elizabeth Holmes, shown in 2015, neither admitted nor denied wrongdoing as part of her settlement with the SEC.
Brendan McDermid/Reuters

Theranos Inc.’s 15-year odyssey to revolutionize the blood-testing business began with huge promise but has been engulfed by ignominy.

Company founder

Elizabeth Holmes,

widely hailed as Silicon Valley’s first female billionaire startup founder, agreed to a settlement with federal securities regulators that strips her of voting control of Theranos, bans her from being an officer or director of any public company for 10 years and requires her to pay a $500,000 penalty.

The deal was announced Wednesday by the Securities and Exchange Commission, which filed civil securities-fraud charges against Ms. Holmes, the company and a former Theranos president. Regulators alleged they raised more than $700 million from investors while deceiving them about the capabilities of the company’s technology.

Ms. Holmes, 34 years old, and Theranos, which also settled the SEC’s charges, neither admitted nor denied wrongdoing. In a statement, the company said it and Ms. Holmes “fully cooperated with the SEC throughout its investigation.” Theranos’s independent directors said the Newark, Calif., company “is pleased to be bringing this matter to a close and looks forward to advancing its technology.”

Read the Journal’s Past Coverage

The SEC began investigating Theranos after The Wall Street Journal reported in October 2015 that the lab instrument developed as the linchpin of the company’s strategy handled just a small fraction of the tests sold to consumers. Some employees also were leery about the machine’s accuracy, the Journal reported. Theranos was valued at more than $9 billion at the time and Ms. Holmes’s majority stake at more than half that.

Before the Journal’s articles, Ms. Holmes’s bold talk and black turtlenecks drew comparisons to Apple Inc. cofounder Steve Jobs. Ms. Holmes was featured on the covers of Fortune and Forbes magazines, and she was a fixture at industry conferences.


December 2004:

$30 million









Money raised from investors
















She started Theranos in 2003 after dropping out of Stanford University as a 19-year-old sophomore. Over the next dozen years, she successfully raised money from wealthy investors such as venture capitalist

Tim Draper


Rupert Murdoch,

who is the executive chairman of News Corp, which publishes the Journal. Theranos’s board included former U.S. Secretary of State

George Shultz

and other high-profile directors. Messrs. Murdoch and Shultz declined to comment.

Theranos’s rise and fall became a symbol of the excesses of the current technology boom, and the company exacted a painful financial and personal toll. The widow of a British biochemist who worked at Theranos and committed suicide in 2013 told the Journal her late husband had become frustrated at the company’s lack of progress. Tyler Shultz, a grandson of the former secretary of state and the first Theranos employee to blow the whistle to a state regulator about what he saw as troubling company practices, became estranged from his grandfather.

An assistant to the elder Mr. Shultz has said that he “is deeply sorry that Tyler’s experience at Theranos was so unsatisfactory for Tyler.”

Many Theranos investors have lost the entire value of their investment. The losses for Mr. Murdoch, once the company’s largest investor, total more than $100 million, people familiar with the matter said.

The SEC said in its civil lawsuit Wednesday that Theranos was “on the verge of bankruptcy” in late 2017. The company has been kept afloat by a loan from a private-equity firm that is secured by Theranos’s patents.

At the height of her fame, Ms. Holmes claimed she had developed revolutionary technology that would bring about earlier disease detection by making blood testing more user-friendly. In public appearances and media interviews, she described a world in which no one would have to say goodbye to a loved one too soon.

In response to the Journal’s articles, Ms. Holmes sought to discredit its reporting, and Theranos threatened the newspaper with litigation. The company later shut down several of its laboratories and voided nearly a million test results, leaving a trail of agonized patients who had been drawn to Theranos by its claims of convenience, low cost and reliability.

Walgreens, a unit of Walgreens Boots Alliance Inc., terminated a three-year partnership with the startup and shut down the Theranos lab-testing centers it had introduced in 40 drugstores in Arizona and California. The two companies had been about to expand the partnership to Walgreens’s more than 8,000 other U.S. stores.

Theranos later settled lawsuits filed by Walgreens and a hedge-fund investor, and the blood-testing company agreed to reimburse patients in Arizona as part of a settlement with the state’s attorney general. In its civil suit, the SEC alleged Ms. Holmes and Theranos “never told” Walgreens about the blood-testing firm’s technological challenges.

The SEC filed separate civil fraud charges against Theranos’s former president and chief operating officer, Ramesh “Sunny” Balwani. Ms. Holmes and Mr. Balwani jointly ran the company for seven years before he retired in May 2016, even as the two executives were in a romantic relationship, according to people familiar with the matter.



…and Elizabeth Holmes allegedly showed this 2014 revenue total in 2015…

$108 million

…but the company’s actual revenue was far lower.


It isn’t clear why the SEC didn’t reach a settlement with Mr. Balwani. His lawyer,

Jeffrey B. Coopersmith,

said in a statement: “Sunny Balwani accurately represented Theranos to investors to the best of his ability. He believed in the potential and mission of the company and its technology to promote transparency and benefit people by empowering them with access to their own health care information at a low cost.”

Theranos is still facing a criminal investigation led by the U.S. attorney’s office in San Francisco, people familiar with the investigation said. They said investigators in that probe have interviewed former Theranos employees and doctors in Arizona who ordered blood tests from the company. Theranos has said it is cooperating.

“The Theranos story is an important lesson for Silicon Valley,” said Jina Choi, director of the SEC’s regional office in San Francisco, in a statement Wednesday. “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.”

The SEC accused Ms. Holmes and Mr. Balwani of an elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business and financial performance.

While telling investors it had developed a portable blood analyzer that could conduct the full range of laboratory tests from just a few drops of blood pricked from a finger, Theranos was actually conducting the vast majority of the tests it offered to consumers in Walgreens stores on commercial analyzers manufactured by other companies, the SEC alleged in its lawsuits against Ms. Holmes, Mr. Balwani and Theranos.

Ms. Holmes and Mr. Balwani allegedly claimed falsely that Theranos’s portable blood analyzers were deployed by the Defense Department in the battlefield in Afghanistan and on medevac helicopters.

The two Theranos executives also allegedly told investors that the company would generate revenue of more than $100 million in 2014, according to the SEC. In fact, Theranos had barely $100,000 of revenue that year, securities regulators alleged.

Many of the SEC allegations Wednesday tracked closely with the Journal’s previous reporting. While Theranos offered more than 240 tests, ranging from cholesterol to cancer, former employees had told the Journal that its proprietary device, code-named Edison after the prolific inventor, could handle just one type of blood test known as immunoassays. A newer device called miniLab could do more than one class of test but was a malfunctioning prototype, according to the former employees.

When Theranos launched its finger-prick blood tests in Walgreens stores in September 2013, it relied on commercial devices made by third-party manufacturers to make up for the Edison’s limited capabilities, according to the former Theranos employees. The vast majority of tests offered to consumers were run on the commercial analyzers, according to the former employees and the SEC’s lawsuits.

The few blood tests that were run on the Edison were considered unreliable by employees in Theranos’s main lab, the former employees said.

While Ms. Holmes was the public face of Theranos, Mr. Balwani ran the company day to day and enforced a culture of secrecy, according to former Theranos employees.

Tyler Shultz was one of several former employees who were sources for the Journal article in October 2015. He said Theranos lawyers pressured him to retract statements he made before the article was published.

He said he refused to do so, even after being approached at the elder Mr. Shultz’s house near the Stanford campus by two lawyers from Boies, Schiller & Flexner, a law firm representing Theranos at the time. Tyler Shultz and his parents told the Journal they spent more than $400,000 on legal fees.

Meanwhile, outside counsel

David Boies,

one of the country’s best-known litigators since the late 1990s, twice came to the Journal’s offices in midtown Manhattan to try to persuade the paper not to publish the October 2015 article. Mr. Boies no longer does legal work for Theranos.

Many lab experts and doctors say the greatest damage caused by Theranos’s actions was to the public health.

One of the tests Theranos voided measured coagulation and was relied on by doctors to adjust the dosage of blood thinners prescribed to patients at risk of blood clots and strokes. Following an inspection of Theranos’s main lab in late 2015, the Centers for Medicare and Medicaid Services said Theranos’s mishandling of that and other tests had put patients in “immediate jeopardy.” Theranos stopped doing any tests in October 2016.

Ten patients have since filed lawsuits against the company alleging consumer fraud and medical battery. The suits have been consolidated in federal court in Arizona. Theranos has said it will defend itself against the allegations in those lawsuits.

—Christopher Weaver contributed to this article.

Write to John Carreyrou at

Appeared in the March 15, 2018, print edition as ‘Theranos And CEO Punished In Fraud.’

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