Elizabeth Holmes, the disgraced founder of blood-testing company Theranos, has been charged with fraud by federal prosecutors along with Theranos’ former president and COO Ramesh Balwani. From the Wall Street Journal:
Ms. Holmes, 34 years old, and Mr. Balwani, 53, were charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud in an indictment handed up Thursday and unsealed Friday.
“This indictment alleges a corporate conspiracy to defraud financial investors,” said Special Agent in Charge John F. Bennett of the Federal Bureau of Investigation in San Francisco. “More egregiously, this conspiracy misled doctors and patients about the reliability of medical tests that endangered health and lives.”
Holmes stepped down as Theranos’ CEO earlier this afternoon but was slated to remain on the company’s board.
Jeremy Faust wrote about the Theranos saga in a piece for Slate in March after the Securities and Exchange Commission announced civil fraud charges against Holmes and Balwani:
The company promised to eliminate painful blood draws from the veins in our elbows and hands thanks to its new technology, which could get the same information from a tiny prick of blood taken from the finger. But I soon suspected that the product might be a fraud and the reason was simple: There was never any published scientific literature to support the claims the company made. No physicians or biomedical scientists had ever laid eyes on a paper that described any breakthrough with any demonstrated capacity to accomplish what the company said it could do. Time and again, the company instead hid behind the same smokescreen: Theranos wouldn’t reveal how its technology worked, or why it was experiencing delays, because it didn’t want to reveal its “trade secrets.” …
How then, did Theranos fool so many for so long? The commonly proffered explanation—that Elizabeth Holmes’ compelling ability as a “storyteller” was so virtuosic that everyone was taken in—is completely inadequate … From the start, Theranos was not marketed to the media and investors as biomedical science company. It was peddled as a Silicon Valley technology startup with the appetizing gimmick that it would “disrupt” the health care model, allowing it to play by a different set of rules than those applied to biomedical or pharmaceutical businesses. That’s why the company got away with what it did for so long, and this is what we need to be wary of in the future.
Holmes had agreed to the penalties imposed by the SEC in March, including a 10 year ban on serving as a director or officer of a public company and a $500,000 fine. If criminally convicted, Holmes and Balwani could face up to 20 years in prison.
