A health technology company and its founder agreed to settle SEC charges that it defrauded investors in relation to statements regarding its portable blood analyzer product.
In a complaint, the SEC alleged that Elizabeth Holmes and Theranos, Inc. ("Theranos") repeatedly misled investors by claiming that the company had developed a portable blood analyzer that was capable of performing a wide range of diagnostic tests from a small blood sample. According to the SEC, Ms. Holmes and Theranos represented that the point-of-care analyzer was "faster, cheaper, and more accurate than existing blood testing laboratories," and would revolutionize the diagnostics industry. In reality, the SEC said, Ms. Holmes and Theranos vastly overstated the capabilities of the analyzer, concealed the fact that Theranos conducted much of its testing using third-party analyzers, and made false statements about partnerships with companies and government agencies. The SEC alleged that Ms. Holmes and Theranos made various misrepresentations through (i) presentations to investors, (ii) public statements and media interviews, and (iii) product demonstrations. Ms. Holmes and Theranos raised over $700 million from investors.
The SEC charged Ms. Holmes and Theranos with violating Exchange Act Section 10(b) and Rule 10b-5, as well as Securities Act Section 17(a). To resolve the charges against Ms. Holmes and Theranos, Ms. Holmes will (i) pay a $500,000 penalty, (ii) be banned from serving as a public company officer or director for ten years, (iii) return Theranos shares obtained as a result of the fraud, and (iv) forfeit voting control of Theranos. If Theranos is acquired or otherwise liquidated, Ms. Holmes will not be permitted to profit from her ownership until $750 million is returned to investors. The settlement is subject to court approval.
In a related action, the SEC filed a complaint in the U.S. District Court for the Northern District of California charging former Theranos President Ramesh Balwani for his role in the alleged fraud.
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