More Fresh Hell for Theranos
For the third time in less than two months, blood-test start-up Theranos and its founder Elizabeth Holmes have been served a lawsuit from investors. On Monday, Robert Colman and Hilary Taubman-Dye filed a lawsuit in California, alleging that Holmes, Theranos’s once-wunderkind founder, and former Theranos president Ramesh “Sunny” Balwani had made false promises about Theranos “built on false statements and omissions.” Colman’s stake was purchased through an investment in venture-capital firm’s Lucas Venture Group fund. Taubman-Dye had the misfortune of buying her shares through a private market for $19 a share in August 2015—just two months before The Wall Street Journal published the first in a series of explosive investigative pieces about Theranos, calling into question the accuracy and legitimacy of the company’s technology. After the Journal’s reporting, Taubman-Dye tried to back out of the purchase.
A few weeks earlier, Walgreens sued Theranos for $140 million, alleging that Theranos breached a contract between the two companies. Walgreens operated Theranos Wellness Centers across the country, where customers could go and get their blood tested. Walgreens, which was Theranos’s biggest partner, terminated the agreement between the two companies in June and shuttered 40 more Theranos Wellness Centers in Walgreens stores. “We are disappointed that Walgreens filed this lawsuit,” a spokesperson told Vanity Fair at the time. “Through its mishandling of our partnership and now this lawsuit, Walgreens has caused Theranos and its investors significant harm. We will respond vigorously to Walgreens’s unfounded allegations, and will seek to hold Walgreens responsible for the damage it has caused to Theranos and its investors.” In October, Partner Fund Management LP, a hedge fund that had invested in Theranos, announced it would be suing the company as well, citing “a series of lies, material misstatements, and omissions” in a letter to its investors obtained and reviewed by The Wall Street Journal. But Colman and Taubman-Dye’s lawsuit is the first seeking class-action status, which could open the door for more investors to sue Theranos and Holmes. (In a related, and thorny issue, Theranos’s longtime counsel and board member David Boies cut ties with the company last week.)
Speaking of other investors, The Wall Street Journal also revealed on Monday a number of Theranos’s high-profile private investors, including its owner Rupert Murdoch, who invested $100 million into Theranos during its heyday. Cox Enterprises and Riley Bechtel, the chairman of construction giant Bechtel Group, also invested in Theranos, and according to the Journal, all these investors stand to see their shares decimated by Theranos’s regulatory and technological problems.