The SEC on Wednesday charged Theranos CEO Elizabeth Holmes and former president Ramesh Balwani with “raising more than $700 million from investors through an elaborate, years-long fraud.” Holmes has agreed to forfeit her majority voting control over the company, pay a $500,000 penalty, and relinquish 18.9 million shares. She will also not be allowed to serve as an officer or director of a public company for the next 10 years.
Theranos is a biotech company that promised to revolutionize the health care industry with sophisticated technology that could conduct comprehensive medical tests on blood retrieved from a pinprick to the finger. Holmes had once captured Silicon Valley’s adoration as a Stanford dropout who founded the multibillion-dollar company in 2003 when she was only 19 years old. With an estimated net worth of $4.5 billion, Holmes was the world’s youngest self-made female billionaire in 2015, according to Forbes.
Wall Street Journal reporter John Carreyrou later revealed in a series of investigative reports that Holmes and other Theranos executives had been exaggerating their claims about the technology, which often produced inaccurate readings. Lawsuits from investors and partners soon followed, and Holmes received a two-year ban from running a laboratory.
The SEC specifically accused Holmes and Balwani of misleading investors about Theranos’ technology, business, and financial performance. One of the falsehoods identified in the complaint was Holmes’s inaccurate claim that the Department of Defense had deployed its blood tests on the battlefield in Afghanistan. The commission further alleges that the blood analyzers could perform only a narrow range of tests, and that Theranos conducted a majority of its patient tests on modified equipment manufactured by other companies.
Jina Choi, director of the SEC’s San Francisco regional office, said in the press release, “The Theranos story is an important lesson for Silicon Valley. 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.”