Business & Tech
Theranos Settles SEC Lawsuit; CEO Elizabeth Holmes Steps Down
Holmes, 34, of Los Altos Hills, will pay a fine and return million of shares to the blood-testing company she founded in Palo Alto in 2003.
SAN FRANCISCO BAY AREA, CA — A Silicon Valley blood-testing company and its chief executive were accused by the U.S. Securities and Exchange Commission today of "elaborate, years-long fraud" that deceived investors into providing more $700 million. The SEC simultaneously filed a civil lawsuit against Theranos Inc. and founder Elizabeth Holmes in federal court in San Francisco and announced a settlement in which Holmes will step down from authority there and pay millions of dollars in fines and stock to be returned to the company.
Holmes, 34, of Los Altos Hills, founded Palo Alto-based Theranos in 2003 after dropping out of Stanford University and has been its chief executive officer. Under the settlement, she will pay a fine of $500,000, return 18.9 million shares to the company, relinquish her voting control of the company and be barred from serving as an officer of a publicly traded company for 10 years.
The company promised a pioneering blood testing technology in which a portable blood analyzer could conduct comprehensive blood tests from drops of finger blood.
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The now-settled lawsuit alleges that the company's testing menu listed 200 tests that could supposedly be carried out, but that the company could perform only 12 of those tests in its clinical laboratory and in some
cases used equipment developed by other companies.
The lawsuit said that Theranos, Holmes and another officer made "false and misleading statements" to investors and the media "with the intent to deceive or with reckless disregard for the truth."
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Among other claims, the lawsuit said Holmes misled investors by claiming Theranos technology was used by the U.S. Department of Defense in Afghanistan and in medical evacuation helicopters. In fact, the device was
used by the department only in a small burn study, according to the suit.
The SEC also sued former Theranos president Ramesh "Sunny" Balwani. That lawsuit was not settled and remains pending.
Theranos previously faced and settled lawsuits by Walgreens and the state of Arizona, was sanctioned by the Centers for Medicare and Medicaid Services, and scaled back its work and its workforce.
The lawsuit says Theranos was near bankruptcy at the end of last year, but received a loan that will allow it to continue work on its mini-laboratory for one year.
SEC regional director Jina Choi said in a statement, "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," Choi said.
Theranos's board of directors issued a statement saying, "The company is pleased to be bringing this matter to a close and looks forward to advancing its technology."
The statement said the company cooperated with the SEC investigation and noted that Holmes and Theranos did not admit to any wrongdoing in the settlement.
By Bay City News Service
Photo: (L-R) Former U.S. President Bill Clinton; Elizabeth Holmes, founder and CEO of Theranos; and Jack Ma, executive chairman of Alibaba Group, speak at the Clinton Global Initiative's closing session on Sept. 29, 2015 in New York City. The Clinton Global Initiative, happening simultaneously with the United Nation's General Assembly, invites leaders from politics, business and culture to discuss world issues. (Photo by Andrew Burton/Getty Images)
