Theranos CEO Elizabeth Holmes charged with criminal fraud

Founder and CEO of Theranos, Elizabeth Holmes. Photo / Getty Images

Federal prosecutors indicted Elizabeth Holmes on criminal fraud charges for allegedly defrauding investors, doctors and the public as the head of the once-heralded blood-testing startup Theranos.

Federal prosecutors also brought charges against the company's former second-in-command.

Holmes, who was once considered a wunderkind of Silicon Valley, and her former Chief Operating Officer Ramesh Balwani, are charged with two counts conspiracy to commit wire fraud and nine counts of wire fraud each, the US Attorney's Office for the Northern District of California said late Friday (US time).

If convicted, they could face prison sentences that would keep them behind bars for the rest of their lives, and total fines of US$2.75 million ($3.9m) each.

Prosecutors allege that Holmes and Balwani deliberately misled investors, policymakers and the public about the accuracy of Theranos' blood-testing technologies going back to at least 2013. Holmes, 34, founded Theranos in Palo Alto, California, in 2003, pitching its technology as a cheaper way to run dozens of blood tests.

Holmes said Theranos had discovered a new way of doing blood testing, one able to do dozens of tests with just a prick of a finger and few droplets of blood.

A notoriously secretive company, Theranos shared very little about its blood-testing machine, nicknamed Edison, with the public or medical community. Holmes said she was inspired to start the company in response to her fear of needles.

She carefully crafted her image as well, wearing almost entirely black turtleneck sweaters that earned her the moniker in Silicon Valley as "the next Steve Jobs."

Investors bought what Holmes was selling and invested hundreds of millions of dollars in the company. At one time, Theranos was worth more than US$10 billion and Holmes the youngest self-made female billionaire.

But an investigation by The Wall Street Journal two years ago found that Theranos' technology was inaccurate at best, and that the company was using routine blood-testing equipment for the vast majority of its tests.

The story raised concerns about the accuracy of Theranos' blood testing technology, which put patients at risk of having conditions either misdiagnosed or ignored.

"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," Acting US Attorney Alex Tse said in a statement.

The Journal's investigation marked the beginning of the end of Theranos. Walgreens ended its blood-testing partnership with the company, and the Department of Health and Human Services effectively banned Theranos in 2016 from doing any blood testing work at all.

The Securities and Exchange Commission brought civil fraud charges against Holmes and Balwani three months ago. Holmes settled with the SEC, agreeing to pay US$500,000 in fines and penalties. Balwani, 53, is fighting the charges.

As the charges were announced Friday, Theranos said Holmes would step down as CEO of the company and its general counsel, David Taylor, would become the company's next CEO. Theranos laid off most of its staff earlier this year and is widely expected to file for bankruptcy. Holmes remains the company's chairman.

The company did not immediately respond to a message seeking comment on Friday's indictments.

- AP