Former Theranos CEO Elizabeth Holmes made a court appearance Friday after being indicted for a “massive fraud” in the blood-testing business that once made her the toast of Silicon Valley.
Holmes, and Theranos’ former chief operating officer, Ramesh “Sunny” Balwani, are both alleged to have made “false and misleading statements to investors and failed to disclose material facts” regarding the efficacy of the company’s Edison blood-testing system, which did not perform as advertised, according to U.S. Justice Department indictments on 11 counts unsealed in federal court.
The criminal indictments that were unsealed on Friday reveal that Holmes and Balwani each face two counts of conspiracy to commit wire fraud and nine counts of wire fraud. Both defendants could be sentenced for up to 20 years in prison, pay a fine of $250,000, and make restitution to victims who lost money by investing in the firm. The suit caps what Wired magazine called a symbol of Silicon Valley’s “fake it till you make it culture.”
Special Agent John Bennett stated in an FBI release, “This conspiracy misled doctors and patients about the reliability of medical tests that endangered health and lives.”
Holmes enjoyed a decade-long meteoric rise in Silicon Valley after dropping out of Stanford University as a 19-year-old sophomore to start what she trumpeted as a disruptive new blood analysis system. Theranos boasted that with just a drop of blood, it could quickly provide over 70 different test results that would normally take a commercial lab much more blood and several days to process.
Based on claims the Theranos mini-lab in a box could disrupt the $70 billion-per-year U.S. diagnostic lab industry, the company attracted over $700 million from major venture capitalists, including Larry Ellison, former CEO of Oracle. Holmes also recruited a powerful Board of Directors that included former Secretary of State George Shultz; Chairman of Bechtel Group Riley P. Bechtel; former Wells Fargo Chairman and CEO Richard Kovacevich; former Senators Sam Nunn and Bill Frist; former Secretary of State Henry Kissinger; and former Secretary of Defense William Perry.
With a Theranos reaching private market valuation of $9 billion in 2015, Elizabeth Holmes’ personal net worth hit $4.5 billion, and she was ranked number 360 on Forbes‘ 500 Richest Americans list. Holmes was named by Barack Obama as a Presidential Ambassador for Global Entrepreneurship, and in early 2016 was scheduled to host a $2,700-per-head fundraiser for Hillary Clinton at Theranos’s Silicon Valley headquarters.
An investigative team from the Wall Street Journal published an exposé in 2016 alleging that Theranos technology could only process a few tests on a single drop of blood. In a devastating revelation, the Journal found that many drops of blood from thousands of patient tests had been diluted and tested with a competitor’s technology.
Breitbart News noted that within days, the Centers for Medicare & Medicaid Services proposed shutting all Theranos labs and banning Holmes from the medical testing business. The value of Theranos, and Elizabeth Holmes’s net worth, went to zero.
Theranos has settled $4.8 million in consumer fraud claims by the State of Arizona, and a lawsuit by Partner Fund Management, which invested about $96 million in Theranos in 2014.
Holmes was sued by the SEC in March for a “massive fraud” involving over $700 million in fundraising. She resigned all her positions at Theranos on Friday.