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Theranos Charged With 'Massive Fraud' by SEC

By Molly Zilli, Esq. on March 15, 2018 | Last updated on March 21, 2019

The once promising blood-testing company, Theranos, has been charged with fraud by the Securities and Exchange Commission. The company, its CEO, and its president were accused of misleading investors and raising hundreds of millions of dollars by making false or exaggerated claims in defiance of the anti-fraud provisions of federal securities laws.

While the SEC is still pursuing its charges against Theranos' former president Ramesh Balwani, the company and CEO Elizabeth Holmes have resolved their charges, with Holmes being stripped of control, among other penalties.

SEC's Fraud Charges

Theranos has had a rough few years, including its battle with Walgreens over its failed blood-testing services. Now, the SEC is going after the company and its top officers for raising over $700 million from investors by exaggerating or making false claims about their business, technology, and financial performance. For example, they are accused of falsely claiming that their products were being used by the Department of Defense in Afghanistan, and that they would make over $100 million in 2014. In reality, the DOD never deployed Theranos' technology, and they made just over $100,00 in 2014, according to the SEC.

What Constitutes Fraud?

As companies seek investors in an effort to raise capital and grow their business, they are required to refrain from securities fraud. This means they can't intentionally or recklessly make a misrepresentation or omission of material fact. As the SEC's Steven Peikin stated in a release regarding this case, "Investors are entitled to nothing less than complete truth and candor from companies and their executives." The SEC seeks to protect investors from these types of dishonest practices.

Theranos' Punishment for Fraud

Once on top of the Forbes list of America's Richest Self-Made Women, Theranos CEO and founder Elizabeth Holmes' net worth has gone from $4.5 billion to nothing. While neither she nor the company has admitted any wrongdoing, they have resolved the charges. Holmes will pay a $500,000 penalty, has given up her majority voting control, reduced her equity stake in the company, and is barred from serving as an officer or director of a public company for 10 years.

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