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Theranos to Pay $4.65 Million in Settlement

By William Vogeler, Esq. on April 19, 2017 | Last updated on March 21, 2019

Theranos, the troubled blood-testing company, has agreed to pay $4.65 million to settle claims in Arizona.

State Attorney General Mark Brnovich said the company misrepresented its blood tests in advertisements to customers, including more than 175,000 Arizonans. About 10 percent of some 1.5 million tests proved to be flawed.

"Everyone who paid for a test will receive a full refund, period," Brnovich said. "This is a great result and a clear message that Arizona's consumer protection laws will be vigorously enforced."

Single Drop of Blood

For a company that fell from a $9 billion valuation to $0 for its founder, Theranos is the poster-child for hype and reckless investment in recent start-up history. Founder Elizabeth Holmes wooed investors with claims about a revolutionary blood test, but it turned out to be an epic fail.

Holmes, who owned half of the company, was called America's richest self-made woman in 2015. But the Wall Street Journal unraveled the true story, leading to waves of class actions and regulatory investigations. The company was quickly devalued to about $700 million -- the same sum that investors had poured into it.

The company claimed it would revolutionize medical diagnostics with technology that could produce dozens of blood tests from a single drop of blood. As Silicon Valley lauded Holmes -- a Stanford drop-out who modeled herself after Steve Jobs -- nobody really scrutinized her claims.

The Journal, however, reported that Theranos had invalidated thousands of tests. The Department of Justice, the Securities Exchange Commission and others wanted to know more.

Arizona Settlement

In Arizona, Theranos has agreed to pay $4,652,000 in consumer restitution, $200,000 in civil penalties, $25,000 in attorneys' fees, and the costs for a claims administrator to distribute the pay-out to consumers.

In addition, the settlement effectively puts Theranos out of business in Arizona. The company may not "own, operate, or direct" any laboratory in Arizona for two years, and will be subject to civil penalties of up to $25,000 per violation of the consent judgment in the future.

In California, "Theranos" has become synonomous with "embarrassment" for investors, especially in tech rich Silicon Valley. Lawyers have filed multiple class actions in the federal district, alleging misrepresentation and other wrongs.

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