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Theranos founder, Indian-American former prez charged with 'massive fraud'

Press Trust of India  |  New York 

US Federal regulators today charged the blood-testing company Theranos, its founder and and former Indian-American with "massive fraud".

Holmes, 34, and Balwani, 52, raised more than USD 700 million by deceiving investors about the company's technology, and and financial performance, the (SEC) said in a statement yesterday.

The SEC alleged that Theranos, Holmes, and Balwani falsely claimed that its key product a portable blood analyzer could conduct comprehensive blood tests from finger drops of blood, revolutionising the blood testing industry.

In truth, Theranos' proprietary analyzer could complete only a small number of tests, and the company used analyzers manufactured by others to conduct majority of patient tests.

and Balwani also claimed that Theranos' products were deployed by the on the battlefield in and that the company would generate more than USD 100 million in revenue in 2014.

In reality, Theranos' was never deployed by the and generated a little more than USD 100,000 in revenue from operations in 2014.

and neither admitted nor denied the allegations in the SEC's complaint and have agreed to settle the charges levied against them.

Holmes agreed to pay a USD 500,000 penalty, be barred from serving as an or of a public company for 10 years, return the remaining 18.9 million shares that she obtained during the fraud, and relinquish her voting control of

Further, due to the company's liquidation preference, if is acquired or is otherwise liquidated, Holmes would not profit from her ownership until over USD 750 million is returned to defrauded investors and other preferred shareholders.

Holmes was once touted as a rising star in Silicon Valley who promised to disrupt the health industry with her company's path-breaking for blood-testing.

Balwani, of California, was the and Chief Operating of Theranos from September 2009 to May 2016.

In 2009, as Theranos was on the verge of running out of money, Holmes turned to her then-boyfriend Balwani, who guaranteed a line of credit for the company. Balwani joined the company and became its and COO that same year, the SEC said.

From the time that Balwani joined Theranos until his departure in 2016, Theranos had no other senior managing executives besides Holmes and Balwani.

They collaborated closely with each other and made decisions about the company together.

From 2013 through 2015, Balwani received a salary of between approximately USD 99,000 and USD 200,000.

The SEC will litigate its claims against Balwani in federal district court in the Northern District of

Steven Peikin, Co-of the SEC's Enforcement Division, said investors are entitled to complete truth and candor from companies and their executives.

"The charges against Theranos, Holmes, and Balwani make clear that there is no exemption from the anti-provisions of the federal securities laws simply because a company is non-public, development-stage, or the subject of exuberant media attention," he said.

of the said the Theranos story is an "important lesson" for Silicon Valley where innovators who seek to "revolutionise and disrupt" an industry.

"They must tell investors the truth about what their technology can do today, not just what they hope it might do someday," she said.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, March 15 2018. 07:05 IST