THE CEO and former-president of Theranos – a company which claimed to have developed technology that would revolutionise blood testing – have been charged with “massive fraud”.
CEO Elizabeth Holmes and former president Ramesh Balwani were charged by the US Securities and Exchange Commission (SEC) with raising more than US$700m from investors through an elaborate, years-long fraud.
The complaints allege that false and misleading statements were made during investor presentations, product demonstrations, and media articles. The SEC says investors were deceived into believing that the company’s portable blood analyser could conduct comprehensive blood tests from finger drops of blood. Such a device would have shaken up the industry, which currently takes vials of blood from a vein to test for diseases such as cancer.
In truth, the SEC says the analyser could complete only a small number of tests, and the company conducted the vast majority of patient tests on modified and industry-standard commercial analysers manufactured by others.
Furthermore, the SEC says claims were made that the products had been deployed by the US Department of Defense on the battlefield in Afghanistan and on medevac helicopters and that the company would generate more than US$100m in revenue in 2014. However, the technology was never deployed by the US Department of Defense and generated little more than US$100,000 in revenue from operations in 2014, the SEC said in statement.
“The Theranos story is an important lesson for Silicon Valley,” said Jina Choi, director of the SEC’s San Francisco Regional Office. “Innovators who seek to revolutionise 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.”
Holmes has agreed to pay a US$500,000 penalty, return the company shares she obtained during the fraud, and be barred from serving as a director of a company for ten years. Neither Holmes nor the company admitted nor denied the allegations in the SEC’s complaint. The SEC says it will litigate its claims against Balwani in court.
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