Theranos founder and CEO Elizabeth Holmes defrauded investors in raising more than $700 million in funding for her blood-testing startup, the U.S. Securities and Exchange Commission said on Wednesday.
Holmes, Balwani and Theranos allegedly claimed that this product was used by the Defense Department on the battlefield in Afghanistan, generating $100 million in revenue for the company in 2014. The SEC said that in reality, the deal accounted for $100,000 in revenue in 2014.
Interest in Theranos' system was unsurprisingly high. Typically blood tests require vials of blood extracted with needles. These statements ultimately deceived investors into believe that the company's key product, a portable blood analyzer, could perform comprehensive blood tests from finger drops of blood.
The company has had its fair share of ups and downs, and raised hundreds of millions of dollars on the promise of revolutionizing medicine. That, though, was something the firm wasn't keen to point out to its backers. "Investors are entitled to nothing less than complete truth and candor from companies and their executives", Steven Peikin, Co-Director of the SEC's Enforcement Division, said of the announcement today.
Theranos and Holmes have agreed to resolve the charges against them, says the SEC, though neither admitted nor denied the allegations in the SEC's complaint.
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Theranos and Holmes have settled with the SEC as a result.
Theranos Inc. and its founder Elizabeth Holmes agreed to settle USA allegations that they raised more than $700 million from investors through an elaborate fraud in which they exaggerated or made false statements about their technology, business and financial performance. This way, if Theranos is acquired or is otherwise liquidated, Holmes won't profit until more than $750 million is first returned to Theranos's shareholders.
Balwani, meanwhile, is yet to settle.
Balwani, on the other hand, is facing a federal court case in the Northern District of California where the SEC will litigate its claims against him.