In a complaint filed Wednesday, the Securities and Exchange Commission leveled charges of “massive fraud” against Elizabeth Holmes, founder and CEO of the Silicon Valley startup Theranos ― charges Holmes has agreed to settle.
The SEC also named former Theranos President Ramesh “Sunny” Balwani in its complaint, accusing Holmes and Balwani of raising over $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.”
Per the SEC, the settlements are subject to court approval, and neither Theranos nor Holmes has admitted to or denied the allegations against them.
The privately held startup had promised to revolutionize the blood testing industry, claiming its proprietary technology could run more than 240 tests on a single drop of blood. Fueled by that claim, and by an early (and ultimately doomed) partnership with Walgreens, Theranos hit a valuation of around $9 billion in 2014.
But by 2016, as news began to spread that Theranos’ technology might not be up to snuff, the company’s value tanked, wiping out Holmes’ $4.5 billion net worth with it.
Innovators... must tell investors the truth about what their technology can do today, not just what they hope it might do someday. San Francisco SEC Director Jina Choi
Wednesday’s SEC complaint asserts that the company’s claims about its technological abilities were misrepresentations at best and outright lies at worst.
For instance, Theranos claimed the U.S. Department of Defense deployed its portable blood analyzers to Afghanistan for use aboard medevac helicopters, generating $100 million in revenue in 2014.
Not only did the DOD never do such a thing, but Theranos’ 2014 revenues were actually closer to $100,000.
“The Theranos story is an important lesson for Silicon Valley,” Jina Choi, director of the SEC’s San Francisco Regional Office, said in a release. “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.”
As part of the settlement, Holmes has agreed to pay a $500,000 penalty and relinquish 18.9 million shares of Theranos stock and her voting control in the company. She’s also been barred from serving as a director of a public company for 10 years.