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Friday, June 15, 2018


Elizabeth Holmes indicted on wire fraud charges, steps down from Theranos

Theranos founder Elizabeth Holmes has been indicted on federal wire fraud charges, the office of the United States Attorney for the Northern District of California announced Friday.

Holmes and former Theranos COO and president Ramesh "Sunny" Balwani allegedly engaged in a multi-million dollar scheme to defraud investors, as well as a scheme to defraud doctors and patients, according to a release from the US Attorney's office.

Holmes and Balwani are charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud. The indictments happened Thursday and were unsealed on Friday. If convicted, they each face a maximum sentence of 20 years in prison and a fine of $250,000, plus restitution for each count of wire fraud and each conspiracy count, according to the US Attorney's office…
See my prior post "Holmes and Balwani should be indicted."


Elizabeth Holmes founded Theranos in 2003 when she was 19 years old. At its height, the company reached a valuation of over $9 billion on the strength of its promise that it had revolutionized the blood-testing industry. Friday, an unraveling that began in October 2015 with a series of Wall Street Journal articles accelerated, as Holmes and her colleague Ramesh “Sunny” Balwani were indicted on multiple counts of fraud. Holmes has also stepped down as CEO.

The indictment, which comprises 11 counts, alleges that Theranos misled both investors—one of whom sent Theranos nearly $100 million in a single wire transfer October 31, 2014—and doctors and patients with its promises of a blood test that delivered quick results with a single finger-prick, rather than the more demanding requirements of conventional methods.

“Holmes and Balwani devised a scheme to defraud doctors and patients, through advertisements and marketing materials, through explicit and implicit claims concerning Theranos’s ability to provide accurate, fast, reliable, and cheap blood tests and test results, and through omissions concerning the limits of and problems with Theranos’s technologies,” the indictment reads…

Holmes has been held up as the ultimate symbol of Silicon Valley’s “fake it til you make it” culture, and for good reason. But the reason the Theranos saga has resonated so deeply, and that Holmes and Balwani face such serious charges now, is that the scandal also transcends the typical tech hype cycle. Theranos wasn’t promising a better juicer, or a shift in the human resources paradigm. It had a direct effect on medical diagnoses: The indictment alleges that Holmes and Balwani knowingly passed along test results that were inaccurate and unreliable. You can’t move fast and break things when those things are human lives...
Felix Salmon at Slate:
Elizabeth Holmes Deserves Prison, but Her Indictment Won’t Make Silicon Valley Any Less Reckless

The long-awaited criminal complaint has now arrived, and Elizabeth Holmes, the founder of medical-tech startup Theranos, has been indicted on two counts of conspiracy to commit wire fraud and nine counts of wire fraud. The charges could send her to prison for as long as 20 years; given the sums of money involved, and the utter lack of remorse that she has shown as her company has imploded in scandal, there’s every reason to expect that if she’s found guilty, her sentence will be at the upper end of that range.

None of this is problematic in the slightest. If you’ve read John Carreyrou’s book about Theranos, you will almost certainly think that Holmes, along with her co-defendant Sunny Balwani, very much deserves anything that’s coming to them. After all, she didn’t just waste investors’ money. Hers was a health-care company, and her fraud—claiming that her finger-prick blood-testing technology worked when it largely didn’t, leading to tens of thousands of voided test results—endangered people’s lives.

But while it’s good that Holmes and Balwani are being prosecuted, there’s another message being sent here by the U.S. Attorney’s Office in the northern district of California. Which is, implicitly: If you’re a startup and you’re not in the highly regulated health-care industry, then you probably can continue to embrace Silicon Valley’s fake-it-till-you-make-it ethos without fear of criminal prosecution…
Not sure I agree about sentencing severity for Holmes.

Maybe Balwani, though (do I really need to spell it out?).

More to come...

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