The Securities and Exchange Commission has charged Theranos founder and CEO Elizabeth Holmes, a rising star once compared to Steve Jobs, along with the company’s former president Ramesh “Sunny” Balwani with fraud.
Holmes has been stripped of control of the blood-testing company she founded, is returning millions of shares to Theranos, and is barred from serving as an officer or director of a public company for 10 years, the SEC said in a statement Wednesday.
Holmes agreed to pay a $500,000 penalty and return the remaining 18.9 million shares that she obtained during the fraud. She has also relinquished her voting control of Theranos by converting her super-majority Theranos Class B Common shares to Class A Common shares.
“The Theranos story is an important lesson for Silicon Valley,” Jina Choi, director of the SEC’s San Francisco Regional Office, said in a statement. “Innovators who seek to revolutionize and disrupt an industry must tell investors the truth about what their technology can do today, not just what they hope it might do someday.”
The SEC charge is the latest in a string of problems that erupted after the Wall Street Journal published its report in 2015 poking holes in many of Theranos’ claims. The article exposed that Theranos was using competitors’ machines to run at least some of its tests, among other indiscretions.
Theranos and Holmes neither admitted nor denied the allegations in the SEC’s complaint. The SEC will litigate its claims against Balwani in federal district court in the Northern District of California.
Theranos raised more than $700 million from investors through what the SEC described as an “elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance.”
The SEC made special note of Theranos’ false claim that its products were deployed by the U.S. Department of Defense on the battlefield in Afghanistan and on medevac helicopters. Holmes claimed that the company would generate more than $100 million in revenue in 2014 as a result of this partnership. Theranos’ technology was never deployed by the U.S. Department of Defense and generated a little more than $100,000 in revenue from operations in 2014, the SEC said.