On 3 January 2022, following several days of jury deliberation, the founder of Theranos was found guilty on four counts of fraud. The final decision concluded a high-profile trial involving a now-dissolved blood testing start-up. Theranos Inc., founded by then nineteen-year-old Elizabeth Holmes in 2003, was a health care tech start-up for consumers, once valued at ten billion USD and poised to revolutionize the industry for blood-testing.
Theranos claimed that its “nanotainer” in conjunction with its “Edison” testing held the potential to concurrently run a multitude of tests on a patient’s physiology and produce a result within minutes. The technology was touted as a breakthrough in health technology, with claims that the blood tests would be performed with a small amount of blood and results delivered at a fraction of current technology costs. The health tech start-up raised more than $720 million from private investors and venture capitalists, with the company reaching a peak valuation of approximately $10 billion in 2013 and 2014.
However, in 2015, rising skepticism from the press raised concerns over the company’s proprietary technology and its proposed effectiveness. Following several interviews with ex-employees of the start-up, a report by medical research professors and investigative journalists published in the Wall Street Journal alleged rampant incompetence in management in addition to claims that the technology had been grossly exaggerated.
As a result, Theranos faced a series of commercial and legal challenges from investors, medical authorities, ex-employees, former business partners, patients, Centers for Medicare and Medicaid Services (CMS) in the US, and the US Securities and Exchange Commission (SEC), amongst others. In 2016, CMS announced a series of plans to sanction the start-up from operating or owning any certified clinical laboratory. In 2017, the company faced lawsuits from Walgreens and Arizona’s Attorney General Mark Brnovich for allegedly violating Arizona’s Consumer Fraud Act. In early 2017, Theranos also settled a lawsuit with one of its most prominent hedge fund investors, Partner Fund Management, following accusations that the company had committed securities fraud. Further, in early 2018, the SEC charged Theranos in addition to its CEO Elizabeth Holmes and former president Ramesh Balwani with engaging in an “elaborate, years-long fraud” which involved deceiving investors “into believing that its key product—a portable blood analyzer—could conduct comprehensive blood tests from finger drops of blood.”
On 15 June 2018, a federal grand jury indicted Balwani and Holmes on two counts of conspiracy to commit wire fraud and nine counts of wire fraud. A press release from the US Attorney’s Office highlighted that in efforts to promote Theranos both Balwani and Holmes “engaged in a multi-million dollar scheme to defraud investors and a separate scheme to defraud doctors and patients.” On the same day, Elizabeth Holmes stepped down as CEO of the health tech start-up.
On 4 September 2018, Theranos announced to its investors that it would cease further operations and release its assets to creditors. The Wall Street Journal further reported that any equity investments in the company were rendered worthless due to the shutdown.
Federal prosecutors called on twenty-nine witnesses to testify during her trial, including ex-employees from Theranos, a former US Defense Secretary, and retail executives. During the trial, Holmes maintained that she had never intended to deceive consumers and alleged that she was the victim of an abusive relationship with Balwani. Balwani, former president of Theranos who will face his trial in 2022 for fraud, has resolutely denied the allegations of abuse in court filings. Holmes further testified that she wasn’t aware of everything occurring at Theranos and never intentionally took steps to mislead consumers and investors.
On 3 January 2022, following a series of legal proceedings, a jury convicted Holmes on four counts of fraud, acquitting the founder of Theranos on another four counts of fraud, with a mistrial declared on the remaining three counts. Presiding Judge Edward J Davila is expected to sentence Holmes at a later date. The trial marked the conclusion of a significant case of criminal fraud involving a Silicon Valley entrepreneur, which attracted significant media and public attention, raising the potential for the trial to have wide-ranging consequences for the tech industry more broadly.