The Securities and Exchange Commission charged Theranos founder and CEO Elizabeth Holmes with massive fraud. Ms. Holmes will lose control of the company for defrauding investors and has agreed to pay a $500,000 fine.
Here are eight things to know.
1. The SEC charged the Silicon Valley-based biotech company, Ms. Holmes and its former president Ramesh "Sunny" Balwani with raising more than $700 million from investors, exaggerating or lying about the firm's technology and financial performance.
2. Theranos, a blood testing company, claimed its Edison device could test for a wide range of conditions with only a finger prick's worth of blood, Time reports.
3. According to the SEC’s complaint, Theranos' analyzer could actually complete only a few tests. Theranos conducted most patient tests on modified and industry-standard commercial analyzers manufactured by other companies.
4. Ms. Holmes founded the company in 2003 as a 19-year-old Stanford (Calif.) University dropout. Investors believed Theranos would revolutionize the blood testing industry; according to Time, the company was once valued at $9 billion.
5. In 2015, Forbes estimated Ms. Holmes' wealth at $4.5 billion. A 2015 article in The Wall Street Journal suggested the devices were inaccurate, however, and in 2016 Forbes revised its estimate of Ms. Holmes' net worth to nothing.
6. CMS investigated the company, revoking its license to operate in California and banning Ms. Holmes from running a laboratory for at least two years. In 2016, Theranos closed its labs and cut 340 employees, 40 percent of the workforce, the BBC reports.
7. The SEC alleges that Ms. Holmes and Mr. Balwani also claimed that Theranos' products were deployed by the U.S. Department of Defense on the battlefield in Afghanistan and claimed that the company would generate more than $100 million in revenue in 2014. The Department of Defense never deployed Theranos technology, and the company generated a little more than $100,000 in revenue from 2014 operations.
8. In addition to the $500,000 penalty, Ms. Holmes will be barred from serving as an officer or director of a public company for 10 years, and has been ordered to return the remaining 18.9 million shares 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. If Theranos is acquired or is otherwise liquidated, Ms. Holmes will not profit from her ownership until over $750 million is returned to defrauded investors and other preferred shareholders. The settlements with Theranos and Ms. Holmes are subject to court approval.
"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."
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