Score:   1
Docket Number:   ND-CA  5:18-cr-00258
Case Name:   USA v. Holmes et al
  Press Releases:
SAN JOSE - A federal grand jury has indicted Elizabeth A. Holmes and Ramesh “Sunny” Balwani, announced Acting United States Attorney Alex G. Tse, Federal Bureau of Investigation (FBI) Special Agent in Charge John F. Bennett; Food and Drug Administration (FDA) Commissioner Scott Gottlieb; and U.S. Postal Inspection Service (USPIS) Inspector in Charge Rafael Nuñez.  The defendants are charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud.  According to the indictment returned yesterday and unsealed today, the charges stem from allegations 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 Palo Alto, Calif.-based Theranos.   

 Holmes, 34, of Los Altos Hills, Calif., founded Theranos in 2003.  Theranos is a private health care and life sciences company with the stated mission to revolutionize medical laboratory testing through allegedly innovative methods for drawing blood, testing blood, and interpreting the resulting patient data.  Balwani, 53, of Atherton, Calif., was employed at Theranos from September of 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. 

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

The indictment alleges that the defendants used a combination of direct communications, marketing materials, statements to the media, financial statements, models, and other information to defraud potential investors.  Specifically, the defendants claimed that Theranos developed a revolutionary and proprietary analyzer that the defendants 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 indictment further alleges that Holmes and Balwani knew that many of their representations about the analyzer were false.  For example, allegedly, Holmes and Balwani knew that the analyzer, in truth, had accuracy and reliability problems, performed a limited number of tests, was slower than some competing devices, and, in some respects, could not compete with existing, more conventional machines.

“This district, led by Silicon Valley, is at the center of modern technological innovation and entrepreneurial spirit; capital investment makes that possible.  Investors large and small from around the world are attracted to Silicon Valley by its track record, its talent, and its promise.  They are also attracted by the fact that behind the innovation and entrepreneurship are rules of law that require honesty, fair play, and transparency.  This office, along with our other law enforcement partners in the Bay Area, will vigorously investigate and prosecute those who do not play by the rules that make Silicon Valley work.  Today’s indictment alleges that through their company, Theranos, CEO Elizabeth Holmes and COO Sunny Balwani not only defrauded investors, but also consumers who trusted and relied upon their allegedly-revolutionary blood-testing technology.”

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

“The conduct alleged in these charges erodes public trust in the safety and effectiveness of medical products, including diagnostics. The FDA would like to extend our thanks to our federal law enforcement partners for sending a strong message to Theranos executives and others that these types of actions will not be tolerated,” said Catherine A. Hermsen, Acting Director, FDA Office of Criminal Investigations.

“The United States Postal Inspection Service has a long history of successfully investigating complex fraud cases,” said Inspector in Charge Rafael E. Nuñez.  “Anyone who engages in deceptive practices should know they will not go undetected and will be held accountable.  The collaborative investigative work on this case conducted by Postal Inspectors, our law enforcement partners, and the United States Attorney’s Office illustrates our efforts to protect both consumers and investors.”

The Indictment Alleges That Doctors And Patients Were Defrauded

 The indictment alleges Holmes and Balwani defrauded doctors and patients by making false claims concerning Theranos’s ability to provide accurate, fast, reliable, and cheap blood tests and test results, and through omissions concerning the limits of and problems with Theranos’s technologies.  The defendants knew Theranos was not capable of consistently producing accurate and reliable results for certain blood tests, including the tests for calcium, chloride, potassium, bicarbonate, HIV, Hba1C, hCG, and sodium.  The defendants nevertheless used interstate electronic wires to purchase advertisements intended to induce individuals to purchase Theranos blood tests at Walgreens stores in California and Arizona.  Through these advertisements, the defendants explicitly represented to individuals that Theranos’s blood tests were cheaper than blood tests from conventional laboratories to induce individuals to purchase Theranos’s blood tests. 

Further, the indictment alleges that based on the defendants’ misrepresentations and omissions, many hundreds of patients paid, or caused their medical insurance companies to pay, Theranos, or Walgreens acting on behalf of Theranos, for blood tests and test results, sometimes following referrals from their defrauded doctors.  In addition, the defendants delivered to doctors and patients blood results that were inaccurate, unreliable, and improperly validated.  The defendants also delivered to doctors and patients blood test results from which critical results were improperly removed.

 The indictment describes a number of schemes that defendants allegedly employed to mislead investors, doctors, and patients.  For example, with respect to investors, defendants performed technology demonstrations during which defendants intended to cause potential investors to believe blood tests were being conducted on Theranos’s proprietary analyzer when, in fact, the analyzer really was running a “null protocol”  and was not testing the potential investor’s blood.  Similarly, defendants purchased and used commercially-available analyzers to test patient blood, while representing to investors that Theranos conducted its patients’ tests using Theranos-manufactured analyzers. 

 The Indictment Alleges That Investors Were Defrauded

According to the indictment, the defendants also allegedly made numerous misrepresentations to potential investors about Theranos’s financial condition and its future prospects.  For example, the defendants represented to investors that Theranos conducted its patients’ tests using Theranos-manufactured analyzers; when, in truth, Holmes and Balwani knew that Theranos purchased and used for patient testing third party, commercially-available analyzers.  The defendants also represented to investors that Theranos would generate over $100 million in revenues and break even in 2014 and that Theranos expected to generate approximately $1 billion in revenues in 2015 when, in truth, the defendants knew Theranos would generate only negligible or modest revenues in 2014 and 2015. 

Further, defendants allegedly represented to investors that Theranos had a profitable and revenue-generating business relationship with the United States Department of Defense and that Theranos’s technology had deployed to the battlefield when, in truth, Theranos had limited revenue from military contracts and its technology was not deployed in the battlefield.  In addition, the defendants represented to investors that Theranos would soon dramatically increase the number of Wellness Centers within Walgreens stores when, in truth, Holmes and Balwani knew by late 2014 that Theranos’s retail Walgreens rollout had stalled because of several issues, including that Walgreens’s executives had concerns with Theranos’s performance.

An indictment merely alleges that crimes have been committed, and the defendants are presumed innocent until proven guilty beyond a reasonable doubt. 

The indictment charges each defendant with two counts of conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349, and nine counts of wire fraud, in violation of 18 U.S.C. § 1343.  If convicted, the defendants face a maximum sentence of twenty (20) years in prison, and a fine of $250,000, plus restitution, for each count of wire fraud and for each conspiracy count.  However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.   

 

 Both defendants appeared today before U.S. Magistrate Judge Susan van Keulen for their initial appearances.  The matter was assigned to the Honorable Lucy H. Koh, U.S. District Judge, for further proceedings. 

 Assistant U.S. Attorneys Jeff Schenk, Robert S. Leach, and John C. Bostic are prosecuting the case with the assistance of Laurie Worthen and Bridget Kilkenny.  The prosecution is the result of an investigation by the FDA Office of Criminal Investigations, the FBI, and the US Postal Inspection Service. 

Docket (9 Docs):   https://docs.google.com/spreadsheets/d/1hDQSl7GmsRvI085MUq2gRQs_Ko11O2_6SZA-gvtXzN4
  Last Updated: 2023-10-31 05:21:04 UTC
Description: The fiscal year of the data file obtained from the AOUSC
Format: YYYY

Description: The code of the federal judicial circuit where the case was located
Format: A2

Description: The code of the federal judicial district where the case was located
Format: A2

Description: The code of the district office where the case was located
Format: A2

Description: Docket number assigned by the district to the case
Format: A7

Description: A unique number assigned to each defendant in a case which cannot be modified by the court
Format: A3

Description: A unique number assigned to each defendant in a case which can be modified by the court
Format: A3

Description: A sequential number indicating whether a case is an original proceeding or a reopen
Format: N5

Description: Case type associated with the current defendant record
Format: A2

Description: A concatenation of district, office, docket number, case type, defendant number, and reopen sequence number
Format: A18

Description: A concatenation of district, office, docket number, case type, and reopen sequence number
Format: A15

Description: The status of the defendant as assigned by the AOUSC
Format: A2

Description: A code indicating the fugitive status of a defendant
Format: A1

Description: The date upon which a defendant became a fugitive
Format: YYYYMMDD

Description: The date upon which a fugitive defendant was taken into custody
Format: YYYYMMDD

Description: The date when a case was first docketed in the district court
Format: YYYYMMDD

Description: The date upon which proceedings in a case commenced on charges pending in the district court where the defendant appeared, or the date of the defendant’s felony-waiver of indictment
Format: YYYYMMDD

Description: A code used to identify the nature of the proceeding
Format: N2

Description: The date when a defendant first appeared before a judicial officer in the district court where a charge was pending
Format: YYYYMMDD

Description: A code indicating the event by which a defendant appeared before a judicial officer in the district court where a charge was pending
Format: A2

Description: A code indicating the type of legal counsel assigned to a defendant
Format: N2

Description: The title and section of the U.S. Code applicable to the offense committed which carried the highest severity
Format: A20

Description: A code indicating the level of offense associated with FTITLE1
Format: N2

Description: The four digit AO offense code associated with FTITLE1
Format: A4

Description: The four digit D2 offense code associated with FTITLE1
Format: A4

Description: A code indicating the severity associated with FTITLE1
Format: A3

Description: The title and section of the U.S. Code applicable to the offense committed which carried the second highest severity
Format: A20

Description: A code indicating the level of offense associated with FTITLE2
Format: N2

Description: The four digit AO offense code associated with FTITLE2
Format: A4

Description: The four digit D2 offense code associated with FTITLE2
Format: A4

Description: A code indicating the severity associated with FTITLE2
Format: A3

Description: The title and section of the U.S. Code applicable to the offense committed which carried the third highest severity
Format: A20

Description: A code indicating the level of offense associated with FTITLE3
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Description: The four digit AO offense code associated with FTITLE3
Format: A4

Description: The four digit D2 offense code associated with FTITLE3
Format: A4

Description: A code indicating the severity associated with FTITLE3
Format: A3

Description: The FIPS code used to indicate the county or parish where an offense was committed
Format: A5

Description: The date of the last action taken on the record
Format: YYYYMMDD

Description: The date upon which judicial proceedings before the court concluded
Format: YYYYMMDD

Description: The date upon which the final sentence is recorded on the docket
Format: YYYYMMDD

Description: The date upon which the case was closed
Format: YYYYMMDD

Description: The total fine imposed at sentencing for all offenses of which the defendant was convicted and a fine was imposed
Format: N8

Description: A count of defendants filed including inter-district transfers
Format: N1

Description: A count of defendants filed excluding inter-district transfers
Format: N1

Description: A count of original proceedings commenced
Format: N1

Description: A count of defendants filed whose proceedings commenced by reopen, remand, appeal, or retrial
Format: N1

Description: A count of defendants terminated including interdistrict transfers
Format: N1

Description: A count of defendants terminated excluding interdistrict transfers
Format: N1

Description: A count of original proceedings terminated
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Description: A count of defendants terminated whose proceedings commenced by reopen, remand, appeal, or retrial
Format: N1

Description: A count of defendants pending as of the last day of the period including long term fugitives
Format: N1

Description: A count of defendants pending as of the last day of the period excluding long term fugitives
Format: N1

Description: The source from which the data were loaded into the AOUSC’s NewSTATS database
Format: A10

Description: A sequential number indicating the iteration of the defendant record
Format: N2

Description: The date the record was loaded into the AOUSC’s NewSTATS database
Format: YYYYMMDD

Description: Statistical year ID label on data file obtained from the AOUSC which represents termination year
Format: YYYY

Data imported from FJC Integrated Database
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