A federal grand jury indicted Theranos founder Elizabeth Holmes and COO Ramesh Balwani for wire fraud. The pair also face a charge of conspiracy to commit fraud. According to the Justice Department, the executives conspired to defraud investors, doctors and patients.
Holmes stepped down as the Palo Alto company’s Chief Executive Officer just moments before the Justice Department announced the indictments. According to Holmes’ attorney, she intends to remain on the company’s Board of Directors. David Taylor, the company’s General Counsel, assumed the position of CEO.
Both Holmes and Balwani appeared before a federal magistrate and pleaded not guilty to the charges. According to federal prosecutors, Holmes and Balwani significantly misled prospective investors about Theranos’ blood-testing technologies. Holmes also misled investors about the readiness of the technology, and the company’s relationship with the Department of Defense.
The company has had several recognizable individuals on the Board of Directors and promised investors significant returns on investment. Theranos also announced in 2013 that it had reached a deal with Walgreen’s to put blood testing equipment in some of the company’s stores. According to Theranos, its technology could perform a wide variety of blood tests using only a few drops of blood. The technology, which does not exist, purported to save doctors and patients time and money. It would also have reduced the amount of blood required to conduct important health screenings and monitoring tests.
The pair face two counts each of conspiracy to commit wire fraud. They also face nine counts each of wire fraud. Each charge carries a potential 20 year prison term and a $250,000 fine. Earlier this year, Holmes reached a settlement with the Securities and Exchange Commission. In that settlement, Holmes agreed to pay a $500,000 fine and relinquish nearly 19 million shares of the company. She also agreed not to serve as a director or officer of a publicly traded company for 10 years.
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