Unsealed Investor Lawsuit Alleges Specific Lies by Theranos

Unsealed Investor Lawsuit Alleges Specific Lies by Theranos

The Company Allegedly Said It Could Perform 1,000 Different Tests

In the smoldering wreckage that was Theranos, finger-pointing has been rampant.

The erstwhile boosters of the once-buzzy blood diagnostics company have been roundly roasted for their gullibility and shoddy due diligence, including journalists (like me), business partners (like Walgreens  WBA 0.14% ), illustrious board members (like former Secretary of State Henry Kissinger and ex-Wells Fargo CEO Dick Kovacevich), and an assortment of Silicon Valley investors.

But even the gullible aren’t supposed to be lied to.

In a 66-page complaint filed in Delaware Chancery Court Monday, and unsealed Thursday afternoon, one major investor has laid out in disturbing detail precisely why it believes that Theranos founder and CEO Elizabeth Holmes and then-president and COO Ramesh “Sunny” Balwani did just that.

San Francisco-based Partner Fund Management (PFM) invested $96.1 million in Theranos in February 2014, after two months of due diligence. In its suit, it alleges that Theranos committed securities fraud and other violations by repeatedly making “misrepresentations, misleading statements, and material omissions about, among other things, the Company’s technology, methods, regulatory interactions, and business plan.”

Holmes and Balwani “repeatedly and knowingly lied,” the fund continues, by asserting “that, among other things, the company had developed a proprietary technology that worked; the company’s proprietary technology was ready for commercial use to perform nearly all laboratory tests on a few drops of blood drawn from a patient’s finger; and the company was on the cusp of receiving all necessary regulatory clearances and approvals.”

The Company Allegedly Said It Could Perform 1,000 Different Tests

In the smoldering wreckage that was Theranos, finger-pointing has been rampant.

The erstwhile boosters of the once-buzzy blood diagnostics company have been roundly roasted for their gullibility and shoddy due diligence, including journalists (like me), business partners (like Walgreens  WBA 0.14% ), illustrious board members (like former Secretary of State Henry Kissinger and ex-Wells Fargo CEO Dick Kovacevich), and an assortment of Silicon Valley investors.

But even the gullible aren’t supposed to be lied to.

In a 66-page complaint filed in Delaware Chancery Court Monday, and unsealed Thursday afternoon, one major investor has laid out in disturbing detail precisely why it believes that Theranos founder and CEO Elizabeth Holmes and then-president and COO Ramesh “Sunny” Balwani did just that.

San Francisco-based Partner Fund Management (PFM) invested $96.1 million in Theranos in February 2014, after two months of due diligence. In its suit, it alleges that Theranos committed securities fraud and other violations by repeatedly making “misrepresentations, misleading statements, and material omissions about, among other things, the Company’s technology, methods, regulatory interactions, and business plan.”

Holmes and Balwani “repeatedly and knowingly lied,” the fund continues, by asserting “that, among other things, the company had developed a proprietary technology that worked; the company’s proprietary technology was ready for commercial use to perform nearly all laboratory tests on a few drops of blood drawn from a patient’s finger; and the company was on the cusp of receiving all necessary regulatory clearances and approvals.”

In a statement issued Monday, Theranos responded: “The suit is without merit, the assertions are baseless, and the plaintiff is engaging in revisionist history. Most of the company statements the plaintiff has cited in its suit were made after the time the plaintiff invested, and could not possibly have been the original basis for investment. This wholesale reliance on post-investment statements, therefore, negates the claim that the plaintiff was misled.”

Balwani, who left the company in May, could not be reached for comment. (He left two months after federal officials with the Centers for Medicare & Medicaid Services found major regulatory violations in the company’s lab practices, including some that posed “immediate jeopardy to patient health.” CMS later ordered that its labs be closed and that Holmes and Balwani be banned from controlling them for two years—an order that Theranos is appealing. Earlier this month the company—which had once hoped to provide a complete range of blood tests using only a few drops of blood drawn from a finger stick rather than via a syringe in the arm—said it was voluntarily shuttering its labs, closing its blood collection centers, laying off 340 of about 850 employees, and redirecting its mission toward the eventual production of point-of-care blood analyzers which could be situated in hospitals or doctors’ offices.)

Read the full article from Fortune here

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