Theranos founder Elizabeth Holmes and a former top executive at the company have been indicted by a federal grand jury on fraud charges related to their pitches for blood-testing equipment investors were told would revolutionize and simplify the process.
Holmes, 34, and Ramesh “Sunny” Balwani are charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud, according to the U.S. Attorney’s Office for the Northern District of California. Federal prosecutors say the pair engaged in two separate schemes, one to defraud investors and the other to take advantage of doctors and patients.
Both Holmes, who founded Theranos in 2003, and Balwani, 53, who had served as its chief operating officer and president, appeared in federal court in California on Friday. The company announced the same day that Holmes had stepped down as chief executive officer but would remain at the firm as founder and board chairman.
“This conspiracy misled doctors and patients about the reliability of the medical tests that endangered health and lives,” FBI Special Agent in Charge John Bennett said in a statement. Additionally, prosecutors said, the events risked tarnishing Silicon Valley’s reputation as a hotbed of reliable technology innovation, something Acting U.S. Attorney Alex Tse promised to prevent.
Theranos didn’t immediately respond to a request for comment on Friday, though the company has previously said it made real and lasting advances in medical technology and holds 1,200 patents and applications that the Institute of Electrical and Electronics Engineers recently judged “to be among the most valuable in the medical device space.”
Neither Holmes nor the company admitted wrongdoing in a March settlement with the Securities and Exchange commission over their claims to investors about the analyzer. She agreed at the time to pay a $500,000 fine, accept a prohibition on serving as a director or officer of a publicly traded company for 10 years, and return about 18.9 million shares of stock.
Prosecutors said in the indictment that Holmes and Balwani employed ads and solicitations to push doctors and patients to use Theranos’ services, even though the pair knew the company couldn’t consistently produce “accurate and reliable results for certain blood tests.”
Holmes and Balwani also used a variety of means, including direct communications, statements to the media, and financial statements, to defraud potential investors, the U.S. Attorney’s Office said.
The two claimed that Theranos developed a “revolutionary and proprietary” analyzer that could perform different clinical tests using small blood samples taken from a patient’s finger and said the technology could yield results that were better and faster than those produced by conventional methods, according to the Justice Department.
The two Theranos executives, however, knew that the analyzer had “accuracy and reliability problems, performed a limited number of tests, was slower than some competing devices, and, in some respects, could not compete with existing, more conventional machines,” prosecutors said.
Patients, according to prosecutors, were targeted in ads that urged them to purchase Theranos blood tests for HIV and other conditions at Walgreen’s stores in California and Arizona. As a result, hundreds of patients or their insurance providers paid for the blood tests and results, sometimes following referrals from their defrauded doctors, the U.S. Attorney’s Office said.
A spokesman for Walgreen’s declined to comment.
“The conduct alleged in these charges erodes public trust in the safety and effectiveness of medical products, including diagnostics,” Catherine Hermsen, acting director of the Office of Criminal Investigations at the Food and Drug Administration, said in a statement.
Holmes and Balwani face up to 20 years in prison and a fine of $250,000 per count.
