Elizabeth Holmes, a Stanford dropout once called the "next Steve Jobs", was charged today (March 14) with "massive fraud" by US regulators for her actions while leading the Palo Alto-based blood testing startup Theranos.
Theranos founder Elizabeth Holmes was charged with "massive fraud" by the Securities and Exchange Commission on Wednesday, a downbeat coda to a once high-flying Silicon Valley start-up that promised to revolutionize the blood analysis process.
In a 24-page complaint, the SEC details the extent to which Holmes and former Theranos president Ramesh Balwani went to defraud investors of more than $700 million from 2013 to 2016, perpetrating an elaborate ruse that greatly exaggerated the effectiveness of the company's blood-testing product.
The SEC said a big part of Holmes' scheme involved false claims that the blood testers were used extensively by the U.S. Department of Defense, deployed on the battlefields of Afghanistan and used in medevac helicopters.
She can not be a director or officer of a publicly traded company for 10 years.
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In the SEC's statement, a top agency officer also managed a dig at media attention that allowed Theranos to thrive for so long.
However, in the same year reports in the Wall Street Journal suggested the devices were flawed and inaccurate. The technology was said to be faster, cheaper and more accurate than existing technology.
Their actions deceived investors into believing that its key product - a portable blood analyser - could conduct comprehensive blood tests from a drop of blood.
Along with the fine announced Wednesday, Ms Holmes agreed to return 18.9 million shares of Theranos that she obtained during the fraud. John Dwyer, a lawyer for Holmes with Cooley LLP, declined to comment.
In October 2016, Holmes said the company closed its clinical labs and wellness centers, affecting 340 employees in California, Arizona and Pennsylvania.
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The SEC concluded that while Theranos touted the technology as revolutionary, the blood analyzer had only been successfully tested a small number of times.
In reality, the company's technology was never deployed by the United States Department of Defendant and generate a little over $100,000 in revenue from operations in 2014. A 2015 Wall Street Journal story claimed that the company's technology was unable to do all that it claimed.
In a separate complaint (PDF), the SEC also accused Balwani of participating in the fraud scheme.
Theranos Founder Elizabeth Holmes was once thought to be the next Steve Jobs. Those statements "were important to potential investors because these relationships lent legitimacy to Theranos's business and its proprietary analyzer", the SEC alleges.
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The SEC is not taking aim at the start-up itself, which past year was near bankruptcy and recently obtained a loan to survive, according to Peikin. She also has agreed to reduce her equity stake in the firm and ceded her voting control over the company, according to the SEC. Mattis later joined Theranos's board; he resigned after being nominated as defense secretary.