June 15 (UPI) — A federal grand jury indicted Theranos founder Elizabeth Holmes on wire fraud charges for a scheme to defraud investors in the health technology company, federal prosecutors in California announced Friday.
The indictment accused Holmes, the former CEO of the company, and former Theranos President Ramesh “Sunny” Balwani of two counts of conspiracy to commit wire fraud and nine counts of wire fraud each.
Holmes and Balwani allegedly made false and misleading statements to investors, media representatives, as well as doctors and patients about innovative methods for drawing blood, testing blood and interpreting the results.
“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 the defendants knew Theranos was not capable of consistently producing accurate and reliable results for certain blood tests,” a news release from the U.S. Attorney’s Office in the Northern District of California said. “The tests performed on Theranos technology, in addition, were likely to contain inaccurate and unreliable results.”
The indictment also said Holmes and Balwani told investors their products were being used by the Department of Defense on the battlefield in Afghanistan and on medical helicopters to generate more than $100 million in revenue, but that was not the case. The statement said the Department of Defense use generated about $100,000 and it was never deployed.
They also allegedly told investors that they would increase the number of Wellness Centers in Walgreens stores, but the rollout had stalled after the pharmacy questioned the accuracy of Theranos’ testing results.
“The conduct alleged in these charges erodes public trust in the safety and effectiveness of medical products, including diagnostics. The [Food and Drug Administration] 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,” said Catherine Hermsen, acting director of the FDA Office of Criminal Investigations.
In March, the Securities and Exchange Commission forced Holmes to give up her role as CEO of Theranos after charging her with “massive fraud.”
Holmes and Balwani settled the charges against them without admitting guilt. The terms of the settlement, through, said Holmes must pay a $500,000 fine, return 18.9 million shares giving her super-voting equity rights and she is banned from serving as an officer or director of a public company for 10 years.