Federal prosecutors indicted Theranos founder Elizabeth Holmes and former chief operating officer Ramesh "Sunny" Balwani for allegedly defrauding investors, the U.S. Attorney's Office announced Friday.
The pair misled investors through false written and verbal communications, marketing materials containing falsehoods and "false and misleading financial statements, models and other statements", the indictment alleges. The start-up promised to disrupt medicine by selling, quick, cheap blood tests directly to consumers. The company and Theranos settled with the SEC, and as part of the settlement, Holmes paid a fine and can not be a director or officer of a publicly traded company for 10 years.
Theranos initially came under fire in 2015 over the accuracy of its blood tests.
Disgraced blood-testing firm Theranos said late Friday that founder Elizabeth Holmes has resigned as CEO, but remains chair of the board.
"In truth, Holmes and Balwani knew that Theranos had and would generate only modest revenues, roughly a few hundred thousand dollars or so in 2014 and 2015", states the indictment. They were charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud.
Earlier this month, a USA judge ruled investors who claimed that Theranos defrauded them into investing indirectly in the company by touting revolutionary blood-testing technology that never existed could not pursue their claims as a class action. The indictments are the result of a federal investigation lasting over two years that was originally sparked by investigations from the Wall Street Journal's John Carreyrou. In a settlement with the SEC, Holmes agreed to pay a $500,000 fine and return 18.9 million shares of Theranos stock.
David Taylor, the company's general counsel, will take over as CEO.
Regulators claim that at the same time, Holmes was using the company's glowing profile in the media to raise more money. Theranos laid off most of its staff earlier this year and is widely expected to file for bankruptcy.