Theranos CEO Elizabeth Holmes Charged With 'Massive Fraud' — Here Are The Highlights

In a newly released indictment and settlement, the Securities and Exchange Commission charged Theranos CEO Elizabeth Holmes with "massive fraud," alleging that while raising $700 million between 2013 and 2015 she deceived investors "by making it appear as if Theranos had successfully developed a commercially-ready portable blood analyzer that could perform a full range of laboratory tests from a small sample of blood."

The SEC says that Holmes has already settled, surrendering voting control of the company, paying $500,000, and agreeing to not lead a publicly traded company for 10 years. As part of the settlement, Holmes neither denied or confirmed the charges against her.

The indictment follows a series of explosive articles from The Wall Street Journal's John Carreyrou that put the company's technological promises into question.

Here are some highlights from the indictment:

Theranos Never Used Its MiniLab For Patient Testing

Despite pivoting its business around its "miniLab" product, which could supposedly carry out an array of tests, including one for Zika, from a drop of blood, Theranos never actually tested patients with it, according to the indictment:

From its retail launch in September 2013 to the time it closed its clinical laboratories in 2016, Theranos never used its miniLab for patient testing in its clinical laboratory. Theranos conducted – at its height – 12 tests using the earlier-generation TSPU, and processed about 50 to 60 tests using the modified third-party analyzers. Theranos processed the remaining 100-plus tests it offered at Pharmacy A using the same types of industry standard technology as other traditional laboratories, or sent tests out to third-party laboratories. 

Theranos' Analyzer Only Performed 12 Of 200 Advertised Tests

Despite putting 200 tests on the testing menu of its proprietary analyzer, Theranos was only able to conduct 12 tests with its own technology:

At all times, however, Holmes, Balwani, and Theranos were aware that, in its clinical laboratory, Theranos' proprietary analyzer performed only approximately 12 tests of the over 200 tests on Theranos' published patient testing menu, and Theranos used third-party commercially available analyzers, some of which Theranos had modified to analyze fingerstick samples, to process the remainder of its patient tests.

While securing deals with large pharmacy and general store partners, Holmes told them that Theranos' proprietary technology could perform hundreds of tests with just a prick of blood, despite the actually limited test range.

Theranos Tried To Hack Third Party Analyzers To Take Finger-Prick Tests

According to the lawsuit, in an effort to offer a broader range of tests, Holmes ordered engineers to hack third-party machines to take finger-prick samples, and lied to executives of partner companies during a demonstration, telling them that their blood was being tested by a proprietary machine:

In order to offer a broader range of fingerstick tests at Pharmacy A, Holmes and
Balwani asked Theranos' engineers in July 2013 to modify third-party analyzers from
commercial manufacturers so they could analyze fingerstick samples. Theranos scientists spent
the two months leading up to the retail launch preparing as many fingerstick tests as possible on
the third-party analyzers, which could typically process only venous samples.

Holmes Lied To Investors About Revenue

Despite making no revenue in 2015 or 2016, Holmes reportedly showed net revenue projections to one investor that went as high as $750 million.

In August 2015, Holmes met with a potential investor, during which she provided Theranos' financial results for fiscal year 2014. These financials showed 2014 net revenues of $108 million, and 2015 and 2016 net revenue projections of $240 million and $750 million, respectively. But Theranos' actual financial performance bore no resemblance to the financial information Holmes shared with investors. Theranos recorded little more than $100,000 in revenue in 2014 and was nowhere near generating $100 million in revenue by the end of 2014.

Despite knowing that end-of-year revenue for 2014 was only slightly over $100,000, Holmes told investors that revenue would come out to be near $100 million.

Holmes knew, or was reckless in not knowing, that Theranos sent different financial information containing Theranos' actual revenue numbers (a little over $100,000) to a third-party valuation firm that it had retained to value the company's common stock. Some of Theranos' projections, provided to potential investors in October 2014, stated Theranos would earn $40 million from pharmaceutical services, $46 million from lab services provided to hospitals, and $9 million from lab services provided to physicians' offices, all by the end of 2014. In reality, Theranos had no revenues from any of those lines of business.

Holmes Lied About Theranos' Work With The Military 

The Theranos CEO also misled investors about how Theranos technology had been used, reportedly telling some, falsely, they Theranos technology has been used on the battlefield and in Afghanistan by US military:

Holmes told multiple investors that Theranos' technology had been deployed by the DOD in the battlefield and in Afghanistan. Holmes told investors that the DOD had deployed Theranos' miniLab on medevac helicopters… Holmes knew, or was reckless in not knowing, that these statements were false and misleading. While Theranos' technology was used in a DOD burn study, it was never deployed by the DOD in the battlefield, in Afghanistan, or on medevac helicopters.

The SEC Is Asking For Steep Punishments For Holmes

The SEC is seeking professional and financial consequences for Holmes:

In this action, the Commission seeks an order enjoining Holmes and Theranos from future violations of the securities laws, requiring Holmes to pay a civil monetary penalty, prohibiting Holmes from acting as an officer or director of any publicly-listed company, requiring Holmes to return all of the shares she obtained during this period, requiring Holmes to relinquish super-majority voting shares she obtained during this period, and providing other appropriate relief.

You can read the full indictment below:

This is a breaking news post and will be updated as the story develops.