Theranos CEO, Indian American Former President Indicted in Multi-Million Dollar Fraud Case

A federal grand jury has indicted Ramesh “Sunny” Balwani, the former president of Silicon Valley-based company Theranos Inc., and its founder and CEO Elizabeth Holmes, the U.S. Department of Justice said in a statement on June 15.

The duo was charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud. According to the indictment unsealed on June 15, the charges stem from allegations that Holmes and Balwani engaged in a multi-million dollar scheme to defraud investors, and a separate scheme to defraud doctors and patients. Both schemes involved efforts to promote Theranos Inc.

Balwani, 53, was employed at Theranos from September 2009 through 2016. At times during that period, Balwani worked in several capacities, including as a member of the company’s board of directors, as its president, and as its chief operating officer.

Theranos is a private health care and life sciences company founded by 34-year-old Holmes in 2003.

“Holmes and Balwani used advertisements and solicitations to encourage and induce doctors and patients to use Theranos’ blood testing laboratory services, even though they knew Theranos was not capable of consistently producing accurate and reliable results for certain blood tests,” the indictment stated. The tests performed on Theranos technology were likely to contain inaccurate and unreliable results, it said.

“This indictment alleges a corporate conspiracy to defraud financial investors. This conspiracy misled doctors and patients about the reliability of medical tests that endangered health and lives,” Special Agent in Charge John F. Bennett said in a statement.

The indictment alleges that the duo used a combination of direct communications, marketing materials, statements to the media, financial statements, models, and other information to defraud potential investors. They also claimed that Theranos developed a revolutionary and proprietary analyzer that they referred to by various names, including as the TSPU, Edison, or minilab.

“The defendants claimed the analyzer was able to perform a full range of clinical tests using small blood samples drawn from a finger stick.  The defendants also represented that the analyzer could produce results that were more accurate and reliable than those yielded by conventional methods—all at a faster speed than previously possible,” the statement added.

According to the indictment, Holmes and Balwani through their company, Theranos, not only defrauded investors, but also consumers who trusted and relied upon their allegedly-revolutionary blood-testing technology.

“The conduct alleged in these charges erodes public trust in the safety and effectiveness of medical products, including diagnostics,” said Catherine A. Hermsen, Acting Director, Food and Drug Administration Office of Criminal Investigations.

In March, the United States Securities and Exchange Commission (SEC) had charged Balwani, and Holmes, and the company itself for raising $700 million through fraudulent statements about the firm.