AN FRANCISCO-A grand jury on Friday indicted CEO Elizabeth Holmes and her former No. 2 Sunny Balwani for alleged fraud at Theranos, the disgraced Silicon Valley company that once promised to revolutionize blood testing in a pitch that was too good to be true.
Along with Holmes, Ramesh "Sunny" Balwani, former president of Theranos, is being charged by the DOJ as well.
The indictment accuses Mr. Holmes and Mr. Balwani of defrauding investors with claims that they would generate $100 million in revenue in 2014 and $1 billion in 2015.
Before the charges were filed, Theranos announced that Holmes had stepped down as chief executive and that David Taylor, the company's general counsel, has been appointed CEO and general counsel. The company was forced to invalidate hundreds of thousands of blood tests performed on patients, and it eventually exited the consumer blood-testing business after the Centers for Medicare & Medicaid Services found deficiencies at the company's laboratory that the agency deemed life-threatening. Holmes remains chairman of the company's board.
The Securities and Exchange Commission also lodged financial charges against Theranos.
In presentations to potential investors, to doctors at medical meetings and to the media, Holmes claimed the Theranos analyzer could perform a full range of clinical tests using tiny blood samples drawn from a finger stick, and that it could produce results that were more accurate, reliable and faster than those from conventional blood tests. In a settlement with the SEC, Holmes agreed to pay a $500,000 fine and return 18.9 million shares of Theranos stock.
Holmes and Balwani also told investors that Theranos had used its own system to conduct tests on patients, when it had actually bought third-party analyzers and used those for patient testing. "This office, along with our other law enforcement partners in the Bay Area, will vigorously investigate and prosecute those who do not play by the rules that make Silicon Valley work", Special Agent in Charge John Bennett said in a statement.
Balwani, 53, and Holmes, 34, are charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud.
The indictment further alleges that Holmes and Balwani knew that many of their representations about the analyzer were false.
It wasn't just investors who were misled, the indictment says.
The Wall Street Journal reported in April that Theranos would cut its workforce "from about 125 employees to two dozen or fewer", according to sources familiar with the matter.