Tag: Theranos

Theranos, CEO Holmes, and Former President Balwani Charged with Massive Fraud

Elizabeth Holmes
Elizabeth Holmes

The Securities and Exchange Commission today charged Silicon Valley-based private company Theranos Inc., its founder and CEO Elizabeth Holmes, and its former president Ramesh “Sunny” Balwani with raising more than $700 million from investors through an elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business and financial performance. Theranos and Holmes have agreed to resolve the charges against them. Importantly, in addition to a penalty, Holmes has agreed to give up majority voting control over the company, as well as to a reduction of her equity which, combined with shares she previously returned, materially reduces her equity stake.

The complaints allege that Theranos, Holmes, and Balwani made numerous false and misleading statements in investor presentations, product demonstrations, and media articles by which they deceived investors into believing that its key product – a portable blood analyzer – could conduct comprehensive blood tests from finger drops of blood, revolutionizing the blood testing industry. In truth, according to the SEC’s complaint, Theranos’ proprietary analyzer could complete only a small number of tests, and the company conducted the vast majority of patient tests on modified and industry-standard commercial analyzers manufactured by others.

The complaints further charge that Theranos, Holmes and Balwani claimed that Theranos’ products were deployed by the U.S. Department of Defense on the battlefield in Afghanistan and on medevac helicopters and that the company would generate more than $100 million in revenue in 2014. In truth, 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.

“Investors are entitled to nothing less than complete truth and candor from companies and their executives,” said Steven Peikin, co-director of the SEC’s Enforcement Division. “The charges against Theranos, Holmes and Balwani make clear that there is no exemption from the anti-fraud provisions of the federal securities laws simply because a company is non-public, development-stage or the subject of exuberant media attention.”

“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,” said Stephanie Avakian, co-director of the SEC’s Enforcement Division. “This package of remedies exemplifies our efforts to impose tailored and meaningful sanctions that directly address the unlawful behavior charged and best remedies the harm done to shareholders.”

“The Theranos story is an important lesson for Silicon Valley,” said Jina Choi, director of the SEC’s San Francisco Regional Office. “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.”

Theranos and Holmes have agreed to settle the fraud charges levied against them. Holmes agreed to pay a $500,000 penalty, be barred from serving as an officer or director of a public company for 10 years, return the remaining 18.9 million shares that she obtained during the fraud, and relinquish her voting control of Theranos by converting her super-majority Theranos Class B Common shares to Class A Common shares.  Due to the company’s liquidation preference, if Theranos is acquired or is otherwise liquidated, Holmes would not profit from her ownership until – assuming redemption of certain warrants – over $750 million is returned to defrauded investors and other preferred shareholders. The settlements with Theranos and Holmes are subject to court approval. 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.

The SEC’s investigation was conducted by Jessica Chan, Rahul Kolhatkar and Michael Foley and supervised by Monique Winkler and Erin Schneider in the San Francisco Regional Office. The SEC’s litigation will be led by Jason Habermeyer and Marc Katz of the San Francisco office.

The Medical Internet of Things: What You Need to Know

Guest post by Paddy Padmanabhan, CEO, Damo Consulting.

Paddy Padmanabhan
Paddy Padmanabhan

Gartner has estimated that some 6.4 billion connected things will be in use by the end of 2016, with some 5.5 million new things getting connected every day. There’s been a clear boom in health and fitness wearables, with healthcare consumers investing in tracking devices – sometimes with their employer’s encouragement – and the MedTech industry has jumped on this in a big way.

Fascinating IoT applications are being developed today, often through unlikely partnerships. For example, medical devices company Medtronic is developing an application that transmits wearables data to the IBM Watson cognitive computing and predictive analytics platform. And Swiss pharma company Novartis is joining hands with Qualcomm to develop an internet-connected inhaler that can send information to a cloud-based big data analytics platform for healthcare providers to use in treating patients. These are exciting examples of how technology and analytics can support personalized medicine.

However, there are a couple of big issues that the IoT movement has to contend with when it comes to the Medical Internet of Things (IoT). These issues concern us as consumers, and they also concern our employers and our healthcare providers equally.

Data security: The medtech industry is widely seen as unprepared for the security risk and vulnerability to hacking that their devices can cause for the rest of the healthcare system. This has immediate repercussions for consumers who may be unaware of the exposure of their personal medical information to cybercriminals. In addition, as healthcare providers start using medical information from these interconnected devices in a cloud-based environment, their enterprise IT, specifically electronic health record (EHR) systems, could be seriously compromised and vulnerable to hackers. And this brings us to the other, emerging issue that is beginning to get some attention in the exchange of IoT data.

Privacy and legal concerns: While there are undisputable benefits for healthcare consumers as physicians gain access to medical information from a range of connected devices, there is a real threat to privacy as well. We start with the question of who owns the data. State law in the U.S varies when it comes to this question, and device makers and other software providers may lay claim to the data which can be used against consumers. At the same time, collecting personal data through devices imposes a set of legal requirements on enterprises, starting with proper disclosures about the collection and use of the information.

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