Fall from grace: Theranos CEO Elizabeth Holmes charged with massive fraud

Adapted from a story by The Washington Post’s Carolyn Y. Johnson.

Elizabeth Holmes once had the perfect backstory.

The wunderkind was a Stanford dropout turned chief executive of Theranos, a blood-testing start-up and Silicon Valley darling that was once valued at $9 billion. It was supposed to revolutionize consumers’ access to their medical information. Holmes had even assembled a company board filled with powerful ex-government and military leaders.

At one point, she was the youngest self-made female billionaire in the world. Black turtlenecks were also her uniform of choice — a nod to her idol Steve Jobs.

Now, she’s being charged by the Securities and Exchange Commission with an “elaborate, years-long fraud,” and she’ll have to pay a $500,000 fine.

What happened

Holmes and former company president Ramesh “Sunny” Balwani “allegedly deceived investors into believing that its key product — a portable blood analyzer — could conduct comprehensive blood tests from finger drops of blood,” the SEC said Wednesday.

The SEC also alleges that Theranos, Holmes and Balwani falsely claimed that their products were being used by the Department of Defense on the battlefield in Afghanistan and on medevac helicopters. That technology was never used by the Department of Defense, even though Gen. Jim Mattis, who then led the U.S. Central Command, personally pushed for it to be used in the field. Regulatory officials in the military flagged problems with Theranos’s blood-testing process. Mattis later joined Theranos’s board. He resigned from that position when he became U.S. defense secretary.

The fall out

Theranos and Holmes have agreed to resolve the charges against them but have not admitted or denied the allegations. Holmes is ceding her voting control of the company and reducing her equity stake in Theranos.

A lawyer for Holmes declined to comment. Balwani’s lawyer could not immediately be reached for comment, either.

In a statement, Theranos’s independent board of directors said the company was “pleased to be bringing this matter to a close and looks forward to advancing its technology.”

An important lesson

″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.″