(CBS News) – Theranos founder and CEO Elizabeth Holmes defrauded investors in raising more than $700 million in funding for her blood-testing startup, the U.S. Securities and Exchange Commission said on Wednesday.
Ramesh “Sunny” Balwani, former president of the company, is also charged in the case.
The lawsuit and settlement announced by the SEC said Holmes and Balwani perpetuated a years-long fraud with fabricated claims about its blood-testing product. Theranos’s portable blood analyzer only completed a few tests and used analyzers made by other companies, according to the regulator.
Holmes has agreed to pay a $500,000 fine to resolve the case, give up voting control of her company and be banned from serving as an officer of a public company for a decade, the agency said.
Balwani did not reach a settlement, and the SEC’s case against him is pending in federal court in California.
“There is no exemption from the anti-fraud provisions of the federal securities laws simply because a company is non-public, development-stage, or the subject of exuberant media attention,” Steven Peikin, co-director of the SEC’s enforcement division, said in a statement.
Holmes garnered attention, and billions of dollars in venture capital funding, for making brash claims about her company’s blood tests, stating that a single drop of blood could be used to run dozens of diagnostic tests. In truth, the product could complete only a small number of tests, and Theranos conducted the vast majority of patient tests using analyzers made by other companies, the SEC said.
Theranos, Holmes and Balwani falsely claimed the company’s products were deployed by the U.S. Department of Defense on the battlefield in Afghanistan and that the company would generate more than $100 million in revenue in 2014, according to the SEC complaint. In fact, the company produced a little more than $100,000 in revenue in 2014, and its technology was not used by the military, the agency said.
The claims by Holmes began coming apart after a series of articles by Wall Street Journal investigative reporter John Carreyrou cast doubt about the technology. Theranos acknowledged in April 2016 thatand agencies.
“The company is pleased to be bringing this matter to a close and looks forward to advancing its technology,” Theranos said in a statement after the SEC announced the settlement.