Elizabeth Holmes was charged with fraud by the SEC on WednesdayHolmes is the chief executive of blood-testing start-up TheranosA former Theranos president, Ramesh Balwani, was also chargedHolmes and Balwani allegedly raised $700M by lying about their productsThe 34-year-old Holmes will pay...
- Elizabeth Holmes was charged with fraud by the SEC on Wednesday
- Holmes is the chief executive of blood-testing start-up Theranos
- A former Theranos president, Ramesh Balwani, was also charged
- Holmes and Balwani allegedly raised $700M by lying about their products
- The 34-year-old Holmes will pay $500,000 to settle the charges
- She won’t be allowed to serve as an executive of a public company for 10 years
- In 2015, Holmes was considered the youngest self-made billionaire in the world
- She posed on the cover of magazines like Forbes and Fortune
- Holmes also wore black turtlenecks, evoking comparisons to Steve Jobs
Elizabeth Holmes, the chief executive of the blood-testing company Theranos, has been charged by US securities regulators with an ‘elaborate, years-long fraud.’
The SEC charged Holmes, 34, and former Theranos president Ramesh Balwani Wednesday with raising more than $700million by exaggerating or lying about the business and its technology.
The pair made a deal to settle the case against them, with the penalty including her surrendering majority voting control of the company, according to a statement by the US Securities and Exchange Commission.
Holmes will pay $500,000 as per the terms of her deal with the government.
US securities regulators on Wednesday charged the chief executive of the blood-testing company Theranos, Elizabeth Holmes, and a former president at the onetime soaring Silicon Valley startup with an ‘elaborate, years-long fraud’
Holmes and Theranos have made a deal to settle the case against them, with the penalty including her surrendering majority voting control of the company, according to a statement by the US Securities and Exchange Commission
Founded in 2003 by Holmes when she was only 19, the company had been seen as a rising star but came under scrutiny after The Wall Street Journal published articles questioning the reliability of its technology.
At its peak, the company’s valuation reached $9billion, with Holmes owning a majority of the shares. Once considered the youngest self-made billionaire in the world, she is now worth nothing, according to Forbes.
Theranos, which had touted a new way of testing that uses far less blood and delivers faster results at much lower cost than traditional methods in US labs, has been under civil and criminal investigation over its claims.
Stephanie Avakian, the SEC enforcement division co-director, said in a statement: ‘As a result of Holmes’ alleged fraudulent conduct, she is being stripped of control of the 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.’
Holmes founded Theranos in Palo Alto, California, in 2003, pitching the company’s technology as a cheaper way to run dozens of blood tests.
Once considered the nation’s youngest female billionaire, Holmes said she was inspired to start the company in response to her fear of needles.
SEC also charged former Theranos president Ramesh Balwani (above) with raising more than $700million by exaggerating or lying about the business and its technology
Theranos raised millions in startup funding by promoting its tests as costing a ‘fraction’ of what other labs charge.
At the center of Theranos’ mystique was its ‘Edison’ machine, which the company claimed could test for a variety of diseases through only a few drops of blood from a person’s finger.
Despite the hype and company claims, Theranos shared few details on how its Edison machine – named after the inventor – worked.
Theranos attracted extraordinary interest and loaded its board with huge names, mainly elder Washington statesmen, including two former US secretaries of state: Henry Kissinger and George Schultz.
The group was criticized for lacking expertise in science or medicine.
Holmes kept strict control over her image, wearing only black turtleneck sweaters in public, much like Steve Jobs.
Theranos and Holmes pushed back hard, and for months refused to acknowledge that its machines were effectively a sham.
State and federal authorities started investigations into the accuracy of the company’s blood testing work.
Founded in 2003 by Holmes when she was only 19, the company had been seen as a rising star but came under scrutiny after The Wall Street Journal published articles questioning the reliability of its technology
Theranos, which had touted a new way of testing that uses far less blood and delivers faster results at much lower cost than traditional methods in US labs, has been under civil and criminal investigation over its claims. A blood sample collection device is seen above
Holmes’ empire, and her strictly controlled image, landed her and her company covers on Forbes and Fortune
In 2016 the Centers for Medicare and Medicaid Services, which oversees blood testing labs in the US, banned Holmes from operating a lab and revoked Theranos’ blood testing license.
In late 2016, Theranos began shutting down its clinical labs and wellness centers and laid off more than 40 percent of its full-time employees.
Along with the fine announced Wednesday, Holmes has agreed to return 18.9 million shares of Theranos that she obtained during the fraud.
If the company is sold or liquidated, Holmes will not profit from any remaining ownership in the company until at least $750 million in proceeds are returned to investors, the SEC said.
‘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,’ said Jina Choi, director of the SEC’s San Francisco regional office.
In November 2016, Walgreens filed a $140million lawsuit against Theranos five months after the drugstore chain announced it was ending its relationship with the start-up.
In June of that year, Walgreens announced that it was terminating its relationship with Theranos and closing operations at 40 blood-draw sites that the Silicon Valley company ran in Arizona at Walgreens’ stores.
The companies reached a settlement in August 2017.
Holmes was also active in politics. She hosted a fundraiser for Hillary Clinton during the 2016 presidential campaign.
Ian Gibbons, the head scientist at the blood test company, died after taking an overdose of painkillers in May 2013 within hours of being summoned for a meeting
She also participated in a panel discussion with former President Bill Clinton at the Clinton Global Initiative in 2015.
That same year, Holmes was named by then-President Barack Obama as a presidential ambassador for global entrepreneurship.
The Clintons were criticized for enlisting Holmes in their fundraising efforts even after it was learned that her company was being investigated by the federal government.
In March 2016, Chelsea Clinton was famously photographed next to Holmes at a fundraiser for Hillary Clinton’s campaign in San Francisco.
The event was initially scheduled to be held at Theranos offices in Palo Alto, but due to the negative press it was moved to the home of an entrepreneur, according to The Verge.
Theranos has also been dogged by persistent complaints about its corporate culture.
The widow of a scientist who killed himself in fear he was about to lose his job at Theranos said her husband was a victim of the company’s paranoid culture.
Ian Gibbons, the head scientist at the blood test company, died after taking an overdose of painkillers in May 2013 within hours of being summoned for a meeting.
According to his widow, Rochelle, he had found faults in machines the company claimed would ‘change the world’ by being able to diagnose diseases from a single pinprick of a patient’s blood.
Having recently been diagnosed with cancer, he stopped going to work and feared he was going to be fired when bosses called him in.
Mrs Gibbons told the British newspaper The Daily Telegraph how her English husband was troubled by the constant presence of lawyers at the start-up’s Silicon Valley headquarters.
‘There were lawyers all over the place who would listen to phone calls the whole time,’ she said.
She also alleged that Holmes kept a watchful eye on employees’ interactions while they worked in its Palo Alto office before any concerns were made public.
‘She would walk around and if she saw clusters of people talking together there would be a problem.
Holmes joined former President Bill Clinton at the Clinton Global Initiative in New York in September 2015
‘He was mystified by the fact a 19-year-old would be given all this power,’ she said.
Mrs Gibbons also claimed her husband was fired but reinstated to keep him from sharing his concerns about the company.
He died a week after the overdose.
Holmes told The Telegraph the company made ‘significant’ efforts to accommodate him during his health battle.
She described him as a ‘friend’ and ‘brilliant scientist’.
Holmes’ downfall is considered all the more shocking considering her background.
During high school, she is said to have completed three college-level Mandarin courses, according to Inc.com.
She also is said to have scores of patents to her name both in the United States and globally.
Holmes developed her first patent during her freshman year at Stanford, where she began to pursue a degree in chemical engineering before dropping out before her sophomore year.
In 2015, she told CBS News that she didn’t even own a television in her home.
‘I work all the time and I’m basically in the office from the time I wake up, and then working until I go to sleep every day,’ she said.
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