Theranos founder Elizabeth Holmes and former Theranos president and COO Ramesh “Sunny” Balwani were indicted Thursday on two counts of conspiracy to commit wire fraud and nine counts of wire fraud, according to a Department of Justice (DOJ) release Friday.
Minutes before the DOJ announcement after the indictment was unsealed Friday, Holmes stepped down as CEO of Theranos, less than three years after reporting from The Wall Street Journal exposed the company as a fraud.
Once a much lauded start-up, promising to deliver a new and innovative means of doing medical blood testing, the company is now known as a poster child for Silicon Valley’s excesses. Additionally, the company became notorious for repeated violations of laboratory standards and federal regulations — so much so that they caused “immediate jeopardy to patient health and safety.”
“The allegations stem from allegations Holmes and Balwani engaged in a multi-million dollar scheme to defraud investors, and separate scheme to defraud doctors and patients,” the DOJ release Friday said. “Both schemes involved efforts to promote Palo Alto, Calif.-based Theranos.”
Holmes founded Theranos in 2003, and for years claimed that Theranos’ unique devices could, with just a single finger prick and a few drops of blood, detect a number of diseases. It was a lie.
Nevertheless, starry-eyed investors poured money into the company and the national media doted on the young CEO. Balwani worked at Theranos from 2009 to 2016. He was dating Holmes during that time, a fact Holmes hid from many investors and other outsiders.
“According to the indictment, Holmes and Balwani used advertisements and solicitations to encourage and induce doctors and patients to use Theranos’s blood testing laboratory services, even though defendants knew Theranos was not capable of consistently producing accurate and reliable results for certain blood tests,” Friday’s release said. “The tests performed on Theranos technology, in addition, were likely to contain inaccurate and unreliable results.”
NEW: Theranos founder Elizabeth Holmes and Ramesh “Sunny” Balwani indicted on two counts of conspiracy to commit wire fraud and nine counts of wire fraud, DOJ says. https://t.co/CCtrP6LrXl pic.twitter.com/KVae3W4lVL
— ABC News (@ABC) June 15, 2018
According to the DOJ, the indictment alleges that Holmes and Balwani used marking materials, direct communications, financial statements, and the media — among other things — to defraud potential investors.
“Specifically,” the DOJ said, “the defendants claimed that Theranos developed a revolutionary and proprietary analyzer… The defendants claimed the analyzer was able to perform a full range of clinical tests using small blood samples drawn from a finger stick.”
Holmes and Balwani also consistently claimed that their tests were more accurate and faster than traditional blood testing methods. The indictment, however, alleges that Holmes and Balwani knew their claims were false all along: Their analyzer was slower and less accurate than other, more traditional methods.
The indictment is, in large part, the product of journalist John Carreyrou’s exposes on Theranos in the Wall Street Journal first published in 2015, which first exposed Holmes and Balwani. Carreyrou’s full accounting of the Theranos story is the subject of his new best-selling book, Bad Blood: Secrets and Lies in a Silicon Valley Startup, released last May.