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Ramesh Balwani charged in multimillion dollar health industry scheme
The founder and chief executive of Theranos Inc., the blood-testing company once valued at $9 billion, has been indicted along with her former boyfriend by a federal grand jury on charges of wire fraud schemes.
Elizabeth Holmes, 34, the Silicon Valley company’s founder and CEO and Ramesh “Sunny” Balwani, 53, former president and COO, had been charged on March 14 by the Securities and Exchange Commission. Both were indicted on June 14 on two counts of conspiracy to commit wire fraud and nine counts of wire fraud. If convicted, each of them could face 20 years in prison and fines of $250,000, plus restitution, for each count of wire fraud and for each conspiracy count.
According to the indictment unsealed on June 15, Holmes and Balwani had engaged in a multi-million dollar scheme to defraud investors and a separate scheme to defraud doctors and patients, and both schemes entailed promoting the Palo Alto, California-based Theranos. Holmes had founded Theranos in 2003 as a 19-year-old college dropout and was hailed and celebrated as a Silicon Valley whiz-kid.
Both appeared June 15 in San Jose, California before U.S. Magistrate Judge Susan van Keuen and according to a Department of Justice press release, the matter was assigned to U.S. District Judge Lucy H. Koh.
Holmes and Balwani pleaded not guilty.
In March, the SEC alleged Holmes and Balwani raised more than $700 million from investors “through an elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance.”
At the time, the SEC said Theranos and Holmes had agreed to resolve the charges against them. Holmes agreed to pay a penalty, the SEC said, and relinquish majority voting control over the company and reduce her equity.
The SEC complaints alleged that Theranos, Holmes, and Balwani made numerous false and misleading statements in investor presentations, product demonstrations, and media articles by which they deceived investors into believing that its key product – a portable blood analyzer – could conduct comprehensive blood tests from finger drops of blood, revolutionizing the blood-testing industry.
The SEC complaint said that, in truth the analyzer “could complete only a small number of tests, and the company conducted the vast majority of patient tests on modified and industry-standard commercial analyzers manufactured by others.”
The complaints further charged that Theranos, Holmes, and Balwani claimed that Theranos’ products were deployed by the U.S. Department of Defense on the battlefield in Afghanistan and on medevac helicopters and that the company would generate more than $100 million in revenue in 2014. The SEC said that the technology was never deployed by defense officials “and generated a little more than $100,000 in revenue from operations in 2014.”
The June 15 DOJ press release said Holmes and Balwani encouraged doctors’ use of their services through advertisements and solicitations while aware that Theranos was incapable of consistently producing accurate and reliable results for certain blood tests, including those for calcium, chloride, potassium, bicarbonate, HIV, Hba1C, hCG, and sodium.
According to the justice officials, Theranos claimed the analyzer “was able to perform a full range of clinical tests using small blood samples drawn from a finger stick” and that the results were swifter, more accurate and more reliable than those achieved by conventional methods.
The indictment said Holmes and Balwani used interstate electronic wires to purchase ads encouraging purchase of Theranos blood tests at Walgreens stores in California and Arizona, saying they were cheaper than tests from conventional labs.
U.S. Attorney Alex G. Tse, who led the investigation, with assistance from the FBI, the FDA, and the U.S. Postal Inspection Services, said that Holmes and Balwani “not only defrauded investors, but also consumers who trusted and relied upon their allegedly-revolutionary blood-testing technology.”
FBI Special Agency in Charge John F. Bennett, said, “This conspiracy misled doctors and patients about the reliability of medical tests that endangered health and lives.”
Catherine A. Hermsen, acting director of the FDA Office of Criminal Investigations, said the alleged conduct “erodes public trust in the safety and effectiveness of medical products, including diagnostics.”
The company’s unraveling began in 2015 when an investigation by the Wall Street Journal reported that the company’s devices were flawed and inaccurate, shocking investors that included media mogul Rupert Murdoch, who owns the WSJ and Fox News, Oracle co-founder Larry Ellison, and venture capital giants like DFJ, and pharmaceutical firms including Walgreens.
At the time Holmes and Balwani were charged by the SEC, Jina Choi, director of the SEC’s San Francisco Regional Office, said, “The Theranos story is an important lesson for Silicon Valley. Innovators who seek to revolutionize and disrupt an industry must tell investors the truth about what their technology can do today, not just what they hope it might do someday.”
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Ramesh Balwani charged in multimillion dollar health industry scheme
The founder and chief executive of Theranos Inc., the blood-testing company once valued at $9 billion, has been indicted along with her former boyfriend by a federal grand jury on charges of wire fraud schemes.
Elizabeth Holmes, 34, the Silicon Valley company’s founder and CEO and Ramesh “Sunny” Balwani, 53, former president and COO, had been charged on March 14 by the Securities and Exchange Commission. Both were indicted on June 14 on two counts of conspiracy to commit wire fraud and nine counts of wire fraud. If convicted, each of them could face 20 years in prison and fines of $250,000, plus restitution, for each count of wire fraud and for each conspiracy count.
According to the indictment unsealed on June 15, Holmes and Balwani had engaged in a multi-million dollar scheme to defraud investors and a separate scheme to defraud doctors and patients, and both schemes entailed promoting the Palo Alto, California-based Theranos. Holmes had founded Theranos in 2003 as a 19-year-old college dropout and was hailed and celebrated as a Silicon Valley whiz-kid.
Both appeared June 15 in San Jose, California before U.S. Magistrate Judge Susan van Keuen and according to a Department of Justice press release, the matter was assigned to U.S. District Judge Lucy H. Koh.
Holmes and Balwani pleaded not guilty.
In March, the SEC alleged Holmes and Balwani raised more than $700 million from investors “through an elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance.”
At the time, the SEC said Theranos and Holmes had agreed to resolve the charges against them. Holmes agreed to pay a penalty, the SEC said, and relinquish majority voting control over the company and reduce her equity.
The SEC complaints alleged that Theranos, Holmes, and Balwani made numerous false and misleading statements in investor presentations, product demonstrations, and media articles by which they deceived investors into believing that its key product – a portable blood analyzer – could conduct comprehensive blood tests from finger drops of blood, revolutionizing the blood-testing industry.
The SEC complaint said that, in truth the analyzer “could complete only a small number of tests, and the company conducted the vast majority of patient tests on modified and industry-standard commercial analyzers manufactured by others.”
The complaints further charged that Theranos, Holmes, and Balwani claimed that Theranos’ products were deployed by the U.S. Department of Defense on the battlefield in Afghanistan and on medevac helicopters and that the company would generate more than $100 million in revenue in 2014. The SEC said that the technology was never deployed by defense officials “and generated a little more than $100,000 in revenue from operations in 2014.”
The June 15 DOJ press release said Holmes and Balwani encouraged doctors’ use of their services through advertisements and solicitations while aware that Theranos was incapable of consistently producing accurate and reliable results for certain blood tests, including those for calcium, chloride, potassium, bicarbonate, HIV, Hba1C, hCG, and sodium.
According to the justice officials, Theranos claimed the analyzer “was able to perform a full range of clinical tests using small blood samples drawn from a finger stick” and that the results were swifter, more accurate and more reliable than those achieved by conventional methods.
The indictment said Holmes and Balwani used interstate electronic wires to purchase ads encouraging purchase of Theranos blood tests at Walgreens stores in California and Arizona, saying they were cheaper than tests from conventional labs.
U.S. Attorney Alex G. Tse, who led the investigation, with assistance from the FBI, the FDA, and the U.S. Postal Inspection Services, said that Holmes and Balwani “not only defrauded investors, but also consumers who trusted and relied upon their allegedly-revolutionary blood-testing technology.”
FBI Special Agency in Charge John F. Bennett, said, “This conspiracy misled doctors and patients about the reliability of medical tests that endangered health and lives.”
Catherine A. Hermsen, acting director of the FDA Office of Criminal Investigations, said the alleged conduct “erodes public trust in the safety and effectiveness of medical products, including diagnostics.”
The company’s unraveling began in 2015 when an investigation by the Wall Street Journal reported that the company’s devices were flawed and inaccurate, shocking investors that included media mogul Rupert Murdoch, who owns the WSJ and Fox News, Oracle co-founder Larry Ellison, and venture capital giants like DFJ, and pharmaceutical firms including Walgreens.
At the time Holmes and Balwani were charged by the SEC, Jina Choi, director of the SEC’s San Francisco Regional Office, said, “The Theranos story is an important lesson for Silicon Valley. Innovators who seek to revolutionize and disrupt an industry must tell investors the truth about what their technology can do today, not just what they hope it might do someday.”
