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SEC Charges Theranos, CEO Elizabeth Holmes With 'Massive Fraud' (engadget.com) 128

An anonymous reader quotes a report from Engadget: The SEC has charged Theranos, Elizabeth Holmes and Ramesh "Sunny" Balwani with fraud relating to the startup's fundraising activities. The company, as well as CEO Holmes and former president Balwani are said to have raised more than $700 million from investors through "an elaborate, years-long fraud." This involved making "false statements about the company's technology, business and financial performance." In a statement, the commission said that the company, and its two executives, misled investors about the capability of its blood testing technology. Theranos' big selling point was that its hardware could scan for a number of diseases with just a small drop of blood. Unfortunately, the company was never able to demonstrate that its system worked as well as its creators claimed.

The company and Elizabeth Holmes have already agreed to settle the charges leveled against them by the SEC. Holmes will have to pay a $500,000 fine and return 18.9 million shares in Theranos that she owned, as well as downgrading her super-majority equity into common stock. The CEO is now barred from serving as the officer or director of a public company for 10 years. In addition, if Theranos is liquidated or acquired, Holmes cannot profit from her remaining shareholding unless $750 million is handed back to defrauded investors. Balwani, on the other hand, is facing a federal court case in the Northern District of California where the SEC will litigate its claims against him.
Worth noting: the court still has to approve the deals between Holmes and Theranos, and neither party has admitted any wrongdoing.
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SEC Charges Theranos, CEO Elizabeth Holmes With 'Massive Fraud'

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  • So nice to see some accountability for these people. I also saw this today:
    https://www.justice.gov/usao-n... [justice.gov]
    • by Dthief ( 1700318 )
      what about the investors do some due diligence and not throw money at a worthless company. TBH I didnt RTFA but did they falsify data, or just make large false claims?
      • Re:A good start. (Score:5, Informative)

        by Comrade Ogilvy ( 1719488 ) on Wednesday March 14, 2018 @01:41PM (#56260317)

        In fact, Theranos had a big song and dance about being too awesome to cough up lab data or peer reviewed papers, as is normal in this business space. A lot of companies looked at Theranos and most of them refused to consider writing checks, for this very reason.

        The people who wrote the checks bought into the "visionary thing", and did not follow standard business practices in the pharma and diagnostics medical space. I feel no pity for them, even if I believe Holmes should face consequences.

        • Well:

          Holmes will have to pay a $500,000 fine and return 18.9 million shares in Theranos that she owned, as well as downgrading her super-majority equity into common stock. The CEO is now barred from serving as the officer or director of a public company for 10 years. In addition, if Theranos is liquidated or acquired, Holmes cannot profit from her remaining shareholding unless $750 million is handed back to defrauded investors.

          She did lose billions when the fraud came to light, and will probably be sued into oblivion and never work in the industry again. That's about as heavy a set of consequences as you can put together outside of jail time.

          • Re:A good start. (Score:5, Interesting)

            by Anonymous Coward on Wednesday March 14, 2018 @02:41PM (#56260809)

            She lost billions? She lost very little, personally: the billions were based on potential valuation and investor stakes and she didn't have enough knowledge to reputably work in the industry in the first place. From her perspective the only penalty here is the jail time she might be facing from SEC charges.

          • Re: (Score:2, Flamebait)

            by rtb61 ( 674572 )

            Well, did she get thrown to the ground, brutally arrested and earn a long prison sentence like a three time shoplifter caught stealing $50 dollars worth of stuff. Oh I see, one rule for the poor and another rule for the rich, cheat $700 million earn a multimillion dollar wage and pay a minor fine, compared to earned income and the losses. Oh the suffering of having to give up millions of worthless shares, apparently plenty of money left to pay well connected lawyers (it's those connections that create purpo

            • "Kill a few people, they call you a murderer. Kill a million, and you're a conqueror. Go figure." (Cliffhanger movie quote)

              Different scenario but same principle.
            • by pnutjam ( 523990 )
              It just feels wrong to punish rich young people with so much of their lives ahead of them.

              Bullshit, bullshit and mover business as usual.
        • she's the God daughter or something of somebody wealthy. She's just a well connected moderately attractive little rich girl being allowed to waste friends & family's money. Ordinarily that by itself would just be annoying, but by all accounts her company ran phony blood tests that caused real harm. I'm with other's on this thread: Criminal Negligence FTW.
      • Re:A good start. (Score:5, Informative)

        by ShanghaiBill ( 739463 ) on Wednesday March 14, 2018 @02:32PM (#56260727)

        what about the investors do some due diligence and not throw money at a worthless company.

        FOMO [wikipedia.org]. If you don't jump on the opportunity, someone else will.

        TBH I didnt RTFA

        Then you missed the best part: They are going to make a movie about Theranos, with Jennifer Lawrence starring as Ms Holmes!

        did they falsify data, or just make large false claims?

        Mostly just lying, exaggerating, and hand-waving. Liz almost certainly started out believing the technology would work. Then schedules slipped, so she told a few fibs to buy time to fix the kinks. But then the schedule slipped some more, so she made the lies a little bigger. The it became clear that there were major problems, and she faced a choice: Either come clean and give up her status as a feted young billionaire on mission to save the world, or ... keep digging deeper. Given that choice, what would you do?

      • They did suffer-- they lost money. Are you implying that Holmes SHOULDN'T be charged with fraud?

      • what about the investors do some due diligence and not throw money at a worthless company.

        While that's good, we still wanna punish those who commit fraud. See also why "why don't you just carry a gun and take Krav Maga" isn't a reason not to punish a mugger.

        • Re:A good start. (Score:4, Insightful)

          by DarkOx ( 621550 ) on Wednesday March 14, 2018 @04:20PM (#56261337) Journal

          The SEC prosecuting her for fraud does not necessarily make the investors whole, remember.

          I don't feel much pity of the investors either; Theranos was asked many times to "show their work" and the answer always came back "trust us!" diligent savvy investors ( a whole lot them ) saw that and avoid the mess. Many even went as far as to write articles and advice letters warning other of Theranos stock.

          Then there were others who were either gullible greedy or both and bought into the lies; after all if what Theranos claimed was true they stood to make a lot of money. Now even if they can recapture of the residual value of Theranos even in excess of their personal holdings as a percentage of equity; they still stand to lose a lot of money.

          None of this changes they fact that Holmes made material false statements to induce behavior in others that was against their interests for her personal gain. That is FRAUD, and fraud is crime. I don't think we want a society where its okay to run around telling lies for the express purpose of duping other out of their property. I am not talking about opinions and highly selective statistics, or gross generalizations of the political kind either, I am talking about plainly demonstrable falsehoods.

    • Re:A good start. (Score:5, Insightful)

      by elrous0 ( 869638 ) on Wednesday March 14, 2018 @02:52PM (#56260847)

      If by "accountability" you mean that they'll have to pay a fine that's a fraction of the money they stole and not face any actual jail time, then yes. That'll teach potential future fraudsters!

      • Re:A good start. (Score:5, Insightful)

        by ShanghaiBill ( 739463 ) on Wednesday March 14, 2018 @03:27PM (#56261049)

        If by "accountability" you mean that they'll have to pay a fine that's a fraction of the money they stole

        They can't pay more because the money they stole is gone. They were charging $X for the blood tests, and then paying someone else $3X to actually run them. They made up the difference by burning up investor money.

        ... and not face any actual jail time, then yes.

        Jail/prison should only be used for violent people that are physically dangerous. For everyone else, there are more constructive punishments. For instance Ms Holmes could spend the next 10 years cleaning bedpans in a nursing home.

        America imprisons more than four times as many people per capita as China, Russia, and Iran, yet we have one of the world's highest recidivism rates. We need to stop looking at prison as the solution to every problem.

        • If by "accountability" you mean that they'll have to pay a fine that's a fraction of the money they stole

          They can't pay more because the money they stole is gone.

          Irrelevant. A defendant's ability to pay has (or should have) nothing to do with the amounts of judgements against them.

          ... and not face any actual jail time, then yes.

          Jail/prison should only be used for violent people that are physically dangerous. For everyone else, there are more constructive punishments.

          Prison is not just a place to keep dangerous people away from the rest of us. It is also a deterrent, for white-collar crimes as well as violent ones.

          Granted, many studies have shown that it is not the level of punishment, but the certainty of receiving it, that acts as a deterrent to crime. Nevertheless, you don't want white-collar criminals to think that they can just buy themselves out

  • Oh, now they tell us.

  • just pay a fine (Score:5, Insightful)

    by PopeRatzo ( 965947 ) on Wednesday March 14, 2018 @01:28PM (#56260217) Journal

    Why does she get off with just paying a fine if she committed "massive fraud"? Shouldn't there be a little jail time involved, too? I'm not saying she's gotta do life, but maybe five years and then community service.

    People get harsher sentences for selling half a pound of weed.

    • Re:just pay a fine (Score:5, Informative)

      by Train0987 ( 1059246 ) on Wednesday March 14, 2018 @01:32PM (#56260257)

      The SEC can only levy civil penalties (fines), not criminal (jail). The DOJ will have to get involved and charge her criminally before she sees jail.

      • by zlives ( 2009072 ) on Wednesday March 14, 2018 @01:37PM (#56260289)

        the DOJ... okay i can rest easy that this will happen now.

        • by Anonymous Coward

          the DOJ... okay i can rest easy that this will happen now.

          Going for the +5, Funny upmod, are we?

        • Re: (Score:2, Troll)

          by lactose99 ( 71132 )

          Hell Trump will likely make this fraudster head of the FDA the way things are going.

          • That entirely depends on whether her sugar daddies supported or opposed him. If they opposed him she can just drag it out till the next democratic administration comes in of course.

      • Re:just pay a fine (Score:5, Insightful)

        by PopeRatzo ( 965947 ) on Wednesday March 14, 2018 @01:58PM (#56260481) Journal

        The DOJ will have to get involved and charge her criminally before she sees jail.

        So, what your saying is that it's only a matter of time before Elizabeth Holmes is named Secretary of Health and Human Services.

        • by UnknowingFool ( 672806 ) on Wednesday March 14, 2018 @02:14PM (#56260619)
          Oh no no no. See the problem isn't that you can't defraud people and get away with leading to cushy government job. You can as long as you don't defraud rich people.
          • by lgw ( 121541 )

            Oh no no no. See the problem isn't that you can't defraud people and get away with leading to cushy government job. You can as long as you don't defraud rich people.

            Bernie Madoff made that mistake. He didn't just go to jail - he was attacked in jail (a low-security prison where you don't have many violent offenders) and beaten so badly he needed major reconstructive surgery on his face - he literally had his face beaten in. The moral of that story is pretty clear.

        • Elizabeth Holmes is the Betsy Devos of Big Pharma, so she would be a perfect fit in the Trump Administration.
      • by Cederic ( 9623 )

        What if she doesn't pay the fine? Sells her shares, takes her millions and fucks off to Mexico?

        Legally she's in the clear?

        • What if she doesn't pay the fine? Sells her shares, takes her millions and fucks off to Mexico?

          Mexico enforces its immigration laws, and doesn't let people like her in.

        • by slew ( 2918 )

          What if she doesn't pay the fine? Sells her shares, takes her millions and fucks off to Mexico?

          Legally she's in the clear?

          Theranos is not a public traded company. Who would buy Theranos shares today? Especially from Ms Holmes?

          Of course she could simply *embezzle* the money from Theranos (they did raise $700M, so some of it has to be left), but I suspect there isn't much left...

    • by Anonymous Coward

      Prison is for the proletariat

      Oh sure, occasionally we'll send a member of the upper class to prison, but it's only when they have exposed the secrets of those around them. Stealing money from the bourgeoisie is not an offense, it's expected.

    • Theranos was a front to build a DNA database of everybody on the sly. You don't just randomly get Henry Kissinger to come out of retirement to be on your Board because you have some cool lab equipment - Intelligence fingerprints are all over this thing.

      It's like when they funded Oracle to start up (look it up if you're dubious), except that venture worked. I believe they really did think that with that kind of money they really could achieve a technical breakthrough and one that would have real benefits f

  • by HockeyPuck ( 141947 ) on Wednesday March 14, 2018 @01:30PM (#56260233)

    She raised $700m from investors but is only penalized $500k? I wonder what her net-worth is now? Probably still paid her self a ton during her tenure....

    • by ClickOnThis ( 137803 ) on Wednesday March 14, 2018 @01:42PM (#56260335) Journal

      She raised $700m from investors but is only penalized $500k? I wonder what her net-worth is now? Probably still paid her self a ton during her tenure....

      It's in TFS, for crying out loud:

      Holmes will have to pay a $500,000 fine and return 18.9 million shares in Theranos that she owned, as well as downgrading her super-majority equity into common stock. The CEO is now barred from serving as the officer or director of a public company for 10 years. In addition, if Theranos is liquidated or acquired, Holmes cannot profit from her remaining shareholding unless $750 million is handed back to defrauded investors.

      • by Jfetjunky ( 4359471 ) on Wednesday March 14, 2018 @01:52PM (#56260427)
        Wish I could mod you up..

        Forbes has downgraded her net worth from $4.5 billion to $0. This settlement basically ruins here. Probably prevents here from "failing upward" too, which is good.
        • Also apparently I can't type "her"... FFS...
        • by Subm ( 79417 )

          > This settlement basically ruins her

          Is she in jail? If not, she doesn't sound ruined. Plenty of innocent, hard working people have less than zero net worths.

        • See, kids? See what happens when you drop out of college?

          Don't be like Elizabeth, who thought she was smarter than everyone else.
          Stay in school, get that degree. You might, just possibly, learn something along the way.
          (after all, that's kinda the point of the exercise)

      • by Anonymous Coward

        How much bonus and salary did she take during her tenure? She probably took more than $500k. And her shares were worthless unless Theranos IPOd or was acquired.

      • Re: (Score:2, Informative)

        by Anonymous Coward

        She raised $700m from investors but is only penalized $500k? I wonder what her net-worth is now? Probably still paid her self a ton during her tenure....

        It's in TFS, for crying out loud:

        Holmes will have to pay a $500,000 fine and return 18.9 million shares in Theranos that she owned, as well as downgrading her super-majority equity into common stock. The CEO is now barred from serving as the officer or director of a public company for 10 years. In addition, if Theranos is liquidated or acquired, Holmes cannot profit from her remaining shareholding unless $750 million is handed back to defrauded investors.

        OK fuckwit, now how about you READ what the parent stated, which was asking about her salary was during her tenure, which has fuck all to do with any of her punishment other than a $500K fine, which is likely pocket change to her. The company was founded in 2004, and prior to this fraud discovery was valued at over 9 billion. Anything from a $10 to 100 million dollar annual salary for a CEO would not be outlandish, which would leave her with a significant amount of personal wealth that is NOT forfeit.

        In o

    • Honestly, the investors bear some responsibility for buying into the venture. I know I'm blaming the victims of scams here, but caveat emptor.

      • by Anonymous Coward

        Even though it's obvious to us that she was a scam you have to remember that even as her house of cards comes tumbling down around her she still has powerful voices protecting her who are all fully aware of her guilt. There has been no update to her wikipedia page, no mention of these events on the front page of CNN.
        When she was still LARPing as a businesswoman these same people made sure her scam was well advertised. She's on the cover of fortune and you're a feminist with a checkbook and it says that he

  • That would result in much more. I wonder what rich person she pissed of that they even went after her.

  • by RightwingNutjob ( 1302813 ) on Wednesday March 14, 2018 @01:53PM (#56260429)
    and the performing a chemistry...

    I am shocked that someone who wears a black turtleneck and outputs not-quite-sensible technobabble could be guilty of defrauding people of money. It just can't happen, I tells ya!
    • The world just ain't the same since we lost our Jobs...

    • But anybody who said her claims seemed fishy and this was all a PR smokescreen was a misogynist who just can't handle the idea of strong independent wymynz CEOs.

  • by Anonymous Coward

    Small selection of other newsworthy events on CNN's homepage:

    TV reporter's viral eye roll causes trouble
    Stranded American mother of eight issues urgent plea to President Trump
    Top MLB star won't even make $1 million this year
    Uber exec: White men need to 'make noise' about diversity

    CRTL+F Holmes : 0 results?
    CRTL+F Theranos : 0 results?

    • by Anonymous Coward

      +1

      Liberal medial at its finest.

    • by suman28 ( 558822 )
      Do the same thing on Fox News and you get the same result. What's your point?
  • schadenfreude (Score:5, Insightful)

    by supernova87a ( 532540 ) <.kepler1. .at. .hotmail.com.> on Wednesday March 14, 2018 @02:28PM (#56260701)
    Again, I will just state that the reason we (maybe secretly) take so much satisfaction / schadenfreude at this story is that someone who was so hyped and the darling of Silicon Valley got so much funding and attention. While others who toil away on good ideas, without nearly so many connections and silver spoons, struggle to even get 1 minute of air time with the kind of funders and backers that she got.

    Separately, I hope that they absolutely nail and jail Sunny Balwani, who threatened and intimidated whistleblowing employees with their careers for exposing the massive fraud that Theranos was.

    Finally, we should be thankful that the SEC and agencies like DHHS and CMMS actually still have some teeth and reputability to follow through on issues like this and have not been totally gutted. Imagine 100 years ago when hucksters like this were touting every fake medicine under the sun and people were actually grateful for public-serving regulation. The order from CMMS to Theranos actually essentially said, "You are in immediate jeopardy of violating the law and must provide proof that you're reversing the harm caused by your inaccurate / fraudulent medical test results. Simply closing your lab will not remove this jeopardy." Thank god for rules.
    • by lgw ( 121541 )

      Imagine 100 years ago when hucksters like this were touting every fake medicine under the sun and people were actually grateful for public-serving regulation.

      You might be surprised. During prohibition, fake "medicines" that were mostly alcohol were the common thing hucksters were selling. Everyone knew the deal, but the snake oil hucksterism kept it legal (or legal enough the the buyers didn't get arrested). Yup, a whole culture of hucksters caused by over-regulation.

  • Shkreli Did Less (Score:4, Interesting)

    by NicknameUnavailable ( 4134147 ) on Wednesday March 14, 2018 @02:58PM (#56260881)
    And got nearly a decade, all his assets taken, no chance of profit, etc - and he had already paid everyone back (plus he gave away the meds to anyone who couldn't afford them for the original "scandal" that made him famous.) Holmes and her entire family should be executed if held to a similar standard.
    • by ausekilis ( 1513635 ) on Wednesday March 14, 2018 @03:10PM (#56260959)

      Not only did he do less, he arguably had less of an impact. With him, people lost money. With Holmes - if people believed the test results - it *could* have been fatal. People use those tests to determine various levels of things and figure out medications and such.

      I don't recall hearing about any deaths from Theranos results, but if there were you'd bet your ass she'd be spending some years at Club Fed.

      • With him, people lost money.

        That's not even the case, he borrowed from one of his companies to pay off debt (with interest) to investors of another (then paid it back.) All of his investors actually made money (which they begrudgingly had to testify to while wanting him behind bars, being insurance company buddies,) but that's the most they could get him on.

        With Holmes - if people believed the test results - it *could* have been fatal.

        People did believe the test results, it's just really hard to pin health issues on bad diagnostics (about a dozen actually did file suit and failed due to health complications bef

    • by icejai ( 214906 )

      The big difference?

      Shkreli - Offered a cash award to anybody who could get a piece of Hillary Clinton's hair.
      Holmes - Holmes has access to deep political connections in Washington. Just look at Theranos' board members.

  • Every time this fraudster was mentioned on here I kept asking why anyone believed her, why anyone kept giving her money and why she wasn't in jail.

    It was obvious from the beginning this was nothing but a scam. She never showed her results, never allowed anyone to replicate her results, and never submitted her blood test to the FDA for testing.

    If those aren't red flags, nothing is.

    • In fairness, Uber was run just as opaquely and with as little regard for regulatory agencies. And I would have loved to have invested in Uber.

      • Uber at least had something physical. They are a taxi service so they had employees and vehicles to show for the money.

        Theranos had nothing. They weren't even using their own product.

        Fraud from beginning to end.

        • Oh, certainly you're right. But it's not clear that it was as easy to see Uber had something physical and Theranos wads using other people's equipment in 2008 (or whenever). It's easy to imagine a crackdown on Uber that made that company worthless and seems easy to imagine there could be some super machines that made Teranos real.

          I'm not defending Theranos. I'm saying it kinda makes sense that investors got conned.

          And yes, Theranos was more of scam that WorldCom or Enron.... hell, you can make the case i

  • Looks like some progress on the equality front - now we got large-type women frauds too. ... I'm not even joking.

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