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Theranos CEO and former president charged with massive fraud

CNBC logo CNBC 3/14/2018 Anita Balakrishnan

Elizabeth Holmes, the founder of the embattled blood testing start-up Theranos, has been charged with massive fraud, the Securities and Exchange Commission said Wednesday.

Theranos said Holmes agreed to settle and pay a $500,000 fine and will be barred from serving as a director or officer of a public company for 10 years.

The SEC alleged that Theranos raised more than $700 million from late 2013 to 2015 while "deceiving investors by making it appear as if Theranos had successfully developed a commercially-ready portable blood analyzer that could perform a full range of laboratory tests from a small sample of blood."

The SEC also said Theranos deceived investors by "hosting misleading technology demonstrations, and overstating the extent of Theranos' relationships with commercial partners," noting that at times Theranos' technology performed could only do about 12 tests of the over 200 tests advertised. The SEC also said former Theranos president Ramesh "Sunny" Balwani and Holmes lied about the extent of Thernos' involvement with the military.

Theranos was once considered a highflying start-up, and Holmes graced major magazine covers, touted as the personification of innovation.

But Wall Street Journal investigations over the past five years questioned the efficacy of Theranos' blood testing technology, raising flags for regulators. Theranos has now resolved proceedings with the Centers for Medicare & Medicaid Services, as well as with the Arizona attorney general.

Theranos previously settled a lawsuit with one of its biggest investors, Partner Fund Management, which invested more than $96 million in Theranos in 2014. Holmes has already said she plans to give away shares to the "most significant shareholders."

If Theranos is acquired or "otherwise liquidated," Holmes will not profit from her ownership until over $750 million is returned to investors, the SEC said.

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


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