Former Indian-American President of Theranos indicted for multi-million dollar scam
The Indian-American ex-President of Theranos blood-testing company along with its founder has been charged in the US for allegedly engaging in a multi-million dollar scheme to defraud investors, doctors, and patients by making false claims about the accuracy of their much-hyped testing devices. Ramesh "Sunny" Balwani, 53, and Elizabeth Holmes, 34, appeared yesterday before US Magistrate Judge Susan van Keulen in San Jose.
Holmes founded Theranos, a Palo-Alto based company in 2003 as a private healthcare company aimed at revolutionizing medical laboratory testing through innovative methods for testing blood, and interpreting the resulting data. Balwani, a former boyfriend of Holmes, was employed at Theranos from September 2009 through 2016 and worked in several capacities including as a member of the company's board of directors among others.
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 they knew Theranos was not capable of consistently producing accurate and reliable results for certain blood tests. The tests performed on Theranos technology, in addition, were likely to contain inaccurate and unreliable results.
The indictment alleges that the duo used a combination of direct communications, marketing materials, financial statements, and other information to defraud potential investors. They claimed that Theranos developed a revolutionary and proprietary analyzer, which could perform a full-range of clinical-tests using small blood samples drawn from a finger-stick. They represented that the analyzer could produce more accurate and reliable results at a faster speed.
Holmes and Balwani knew that many of their representations about the analyzer were false and that the analyzer had accuracy and reliability problems, including being slower than some competing devices. "This conspiracy misled doctors and patients about the reliability of medical tests that endangered health and lives," Federal Bureau of Investigation (FBI) Special Agent in Charge John Bennett said.
The duo represented to investors that Theranos used Theranos-manufactured analyzers when in truth, they knew that Theranos purchased third party, commercially-available analyzers. The defendants also represented to investors that Theranos would generate over $100mn and break-even in 2014 and that Theranos expected to generate approximately $1bn in 2015 when, in truth, the defendants knew Theranos would generate only negligible or modest revenues.