Here’s the summary of the indictment from the U.S. Attorney’s office in San Jose.<\/p>\n
SAN JOSE – A federal grand jury has indicted Elizabeth A. Holmes and Ramesh \u201cSunny\u201d Balwani, announced Acting United States Attorney Alex G. Tse, Federal Bureau of Investigation (FBI) Special Agent in Charge John F. Bennett; Food and Drug Administration (FDA) Commissioner Scott Gottlieb; and U.S. Postal Inspection Service (USPIS) Inspector in Charge Rafael Nu\u00f1ez.\u00a0 The defendants are charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud.\u00a0 According to the indictment returned yesterday and unsealed today, the charges stem from allegations Holmes and Balwani engaged in a multi-million dollar scheme to defraud investors, and a separate scheme to defraud doctors and patients.\u00a0 Both schemes involved efforts to promote Palo Alto, Calif.-based Theranos.<\/p>\n
Holmes, 34, of Los Altos Hills, Calif., founded Theranos in 2003.\u00a0 Theranos is a private health care and life sciences company with the stated mission to revolutionize medical laboratory testing through allegedly innovative methods for drawing blood, testing blood, and interpreting the resulting patient data.\u00a0 Balwani, 53, of Atherton, Calif., was employed at Theranos from September of 2009 through 2016.\u00a0 At times during that period, Balwani worked in several capacities including as a member of the company\u2019s board of directors, as its president, and as its chief operating officer.<\/p>\n
According to the indictment, Holmes and Balwani used advertisements and solicitations to encourage and induce doctors and patients to use Theranos\u2019s blood testing laboratory services, even though the defendants knew Theranos was not capable of consistently producing accurate and reliable results for certain blood tests.\u00a0 The tests performed on Theranos technology, in addition, were likely to contain inaccurate and unreliable results.<\/p>\n
The indictment alleges that the defendants used a combination of direct communications, marketing materials, statements to the media, financial statements, models, and other information to defraud potential investors.\u00a0 Specifically, the defendants claimed that Theranos developed a revolutionary and proprietary analyzer that the defendants referred to by various names, including as the TSPU, Edison, or minilab.\u00a0 The defendants claimed the analyzer was able to perform a full range of clinical tests using small blood samples drawn from a finger stick.\u00a0 The defendants also represented that the analyzer could produce results that were more accurate and reliable than those yielded by conventional methods\u2014all at a faster speed than previously possible.<\/p>\n
The indictment further alleges that Holmes and Balwani knew that many of their representations about the analyzer were false.\u00a0 For example, allegedly, Holmes and Balwani knew that the analyzer, in truth, 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.<\/p>\n
\u201cThis district, led by Silicon Valley, is at the center of modern technological innovation and entrepreneurial spirit; capital investment makes that possible.\u00a0 Investors large and small from around the world are attracted to Silicon Valley by its track record, its talent, and its promise.\u00a0 They are also attracted by the fact that behind the innovation and entrepreneurship are rules of law that require honesty, fair play, and transparency.\u00a0 This office, along with our other law enforcement partners in the Bay Area, will vigorously investigate and prosecute those who do not play by the rules that make Silicon Valley work.\u00a0 Today\u2019s indictment alleges that through their company, Theranos, CEO Elizabeth Holmes and COO Sunny Balwani not only defrauded investors, but also consumers who trusted and relied upon their allegedly-revolutionary blood-testing technology.\u201d<\/p>\n
\u201cThis indictment alleges a corporate conspiracy to defraud financial investors,\u201d said Special Agent in Charge Bennett.\u00a0 \u201cThis conspiracy misled doctors and patients about the reliability of medical tests that endangered health and lives.\u201d<\/p>\n
\u201cThe conduct alleged in these charges erodes public trust in the safety and effectiveness of medical products, including diagnostics. The FDA would like to extend our thanks to our federal law enforcement partners for sending a strong message to Theranos executives and others that these types of actions will not be tolerated,\u201d said Catherine A. Hermsen, Acting Director, FDA Office of Criminal Investigations.<\/p>\n
\u201cThe United States Postal Inspection Service has a long history of successfully investigating complex fraud cases,\u201d said Inspector in Charge Rafael E. Nu\u00f1ez.\u00a0 \u201cAnyone who engages in deceptive practices should know they will not go undetected and will be held accountable.\u00a0 The collaborative investigative work on this case conducted by Postal Inspectors, our law enforcement partners, and the United States Attorney\u2019s Office illustrates our efforts to protect both consumers and investors.\u201d<\/p>\n
The Indictment Alleges That Doctors And Patients Were Defrauded<\/strong><\/em><\/p>\n The indictment alleges Holmes and Balwani defrauded doctors and patients by making false claims concerning Theranos\u2019s ability to provide accurate, fast, reliable, and cheap blood tests and test results, and through omissions concerning the limits of and problems with Theranos\u2019s technologies.\u00a0 The defendants knew Theranos was not capable of consistently producing accurate and reliable results for certain blood tests, including the tests for calcium, chloride, potassium, bicarbonate, HIV, Hba1C, hCG, and sodium.\u00a0 The defendants nevertheless used interstate electronic wires to purchase advertisements intended to induce individuals to purchase Theranos blood tests at Walgreens stores in California and Arizona.\u00a0 Through these advertisements, the defendants explicitly represented to individuals that Theranos\u2019s blood tests were cheaper than blood tests from conventional laboratories to induce individuals to purchase Theranos\u2019s blood tests.<\/p>\n Further, the indictment alleges that based on the defendants\u2019 misrepresentations and omissions, many hundreds of patients paid, or caused their medical insurance companies to pay, Theranos, or Walgreens acting on behalf of Theranos, for blood tests and test results, sometimes following referrals from their defrauded doctors.\u00a0 In addition, the defendants delivered to doctors and patients blood results that were inaccurate, unreliable, and improperly validated.\u00a0 The defendants also delivered to doctors and patients blood test results from which critical results were improperly removed.<\/p>\n The indictment describes a number of schemes that defendants allegedly employed to mislead investors, doctors, and patients.\u00a0 For example, with respect to investors, defendants performed technology demonstrations during which defendants intended to cause potential investors to believe blood tests were being conducted on Theranos\u2019s proprietary analyzer when, in fact, the analyzer really was running a \u201cnull protocol\u201d\u00a0 and was not testing the potential investor\u2019s blood.\u00a0 Similarly, defendants purchased and used commercially-available analyzers to test patient blood, while representing to investors that Theranos conducted its patients\u2019 tests using Theranos-manufactured analyzers.<\/p>\n \u00a0The Indictment Alleges That Investors Were Defrauded<\/strong><\/em><\/p>\n According to the indictment, the defendants also allegedly made numerous misrepresentations to potential investors about Theranos\u2019s financial condition and its future prospects.\u00a0 For example, the defendants represented to investors that Theranos conducted its patients\u2019 tests using Theranos-manufactured analyzers; when, in truth, Holmes and Balwani knew that Theranos purchased and used for patient testing third party, commercially-available analyzers.\u00a0 The defendants also represented to investors that Theranos would generate over $100 million in revenues and break even in 2014 and that Theranos expected to generate approximately $1 billion in revenues in 2015 when, in truth, the defendants knew Theranos would generate only negligible or modest revenues in 2014 and 2015.<\/p>\n Further, defendants allegedly represented to investors that Theranos had a profitable and revenue-generating business relationship with the United States Department of Defense and that Theranos\u2019s technology had deployed to the battlefield when, in truth, Theranos had limited revenue from military contracts and its technology was not deployed in the battlefield.\u00a0 In addition, the defendants represented to investors that Theranos would soon dramatically increase the number of Wellness Centers within Walgreens stores when, in truth, Holmes and Balwani knew by late 2014 that Theranos\u2019s retail Walgreens rollout had stalled because of several issues, including that Walgreens\u2019s executives had concerns with Theranos\u2019s performance.<\/p>\n An indictment merely alleges that crimes have been committed, and the defendants are presumed innocent until proven guilty beyond a reasonable doubt.<\/p>\n The indictment charges each defendant with two counts of conspiracy to commit wire fraud, in violation of 18 U.S.C. \u00a7 1349, and nine counts of wire fraud, in violation of 18 U.S.C. \u00a7 1343.\u00a0 If convicted, the defendants face a maximum sentence of twenty (20) years in prison, and a fine of $250,000, plus restitution, for each count of wire fraud and for each conspiracy count.\u00a0 However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. \u00a7 3553.<\/p>\n Both defendants appeared today before U.S. Magistrate Judge Susan van Keulen for their initial appearances.\u00a0 The matter was assigned to the Honorable Lucy H. Koh, U.S. District Judge, for further proceedings.<\/p>\n Assistant U.S. Attorneys Jeff Schenk, Robert S. Leach, and John C. Bostic are prosecuting the case with the assistance of Laurie Worthen and Bridget Kilkenny.\u00a0 The prosecution is the result of an investigation by the FDA Office of Criminal Investigations, the FBI, and the US Postal Inspection Service.<\/p>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":" Here’s the summary of the indictment from the U.S. Attorney’s office in San Jose. FOR IMMEDIATE RELEASE Friday, June 15, 2018 Theranos Founder and Former Chief Operating Officer Charged In Alleged Wire Fraud Schemes Elizabeth Holmes and Ramesh \u201cSunny\u201d Balwani Are Alleged To Have Perpetrated Multi-million Dollar Schemes To Defraud Investors, Doctors, and Patients. 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