"Years after it was reported that the SEC was looking into improprieties at the once high-flying blood-testing company Theranos, its founder, Elizabeth Holmes, and the company's former president, Ramesh "Sunny" Balwani", have been formally charged with massive fraud by the agency.
The SEC alleged the company's analyzer could complete only a small number of tests, and Theranos conducted the vast majority of patient tests on modified commercial analyzer manufactured by other companies.
Theranos, initially seen as a Silicon Valley darling, received attention in the media for Holmes's story of having left Stanford to start the company at 19 years old. Holmes will pay a $500,000 penalty and will be stripped of control of the company she founded.
Theranos first came under scrutiny in October 2015, when the two-time Pulitzer-prize winning WSJ journalist John Carreyrou published an explosive investigative piece, suggesting that the company - then valued by investors at a stunning $9 billion - had greatly exaggerated its abilities to quickly process an expansive range of laboratory tests from a few drops of blood.
Due to the company's liquidation preference, if Theranos is acquired or is otherwise liquidated, Holmes would not profit from her ownership until - assuming redemption of certain warrants - over $750 million is returned to defrauded investors and other preferred shareholders.
"Innovators who seek to revolutionise 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", said Jina Choi, director of the SEC's San Francisco regional office. It's important to note that the deals between Holmes and Theranos are still subject to approval by the court, and neither party has admitted any wrongdoing.
Theranos and Holmes have settled with the SEC as a result. The commission said it planned to pursue its claims against Balwani in Federal District Court for the Northern District of California. That's where SEC will litigate its claims against him.