Saturday, December 14, 2019
Corporate Compliance Insights
  • Home
    • Home
  • About
    • About CCI
    • Writing for CCI
    • Advertise With Us
  • Articles
    • See All Articles
    • Compliance
    • Ethics
    • Risk
    • FCPA
    • Governance
    • Fraud
    • Audit
    • HR Compliance
    • Cybersecurity
    • Data Privacy
    • Financial Services
    • Leadership and Career
  • Industry News
  • Jobs
  • Events
    • Webinars & Events
    • Submit an Event
  • Downloads
    • eBooks
    • Whitepapers
  • Podcasts
  • Videos
  • Subscribe
No Result
View All Result
  • Home
    • Home
  • About
    • About CCI
    • Writing for CCI
    • Advertise With Us
  • Articles
    • See All Articles
    • Compliance
    • Ethics
    • Risk
    • FCPA
    • Governance
    • Fraud
    • Audit
    • HR Compliance
    • Cybersecurity
    • Data Privacy
    • Financial Services
    • Leadership and Career
  • Industry News
  • Jobs
  • Events
    • Webinars & Events
    • Submit an Event
  • Downloads
    • eBooks
    • Whitepapers
  • Podcasts
  • Videos
  • Subscribe
No Result
View All Result
Corporate Compliance Insights
Home Fraud

The Shoe Drops on Theranos’ Former CEO and COO

by Michael Volkov
June 20, 2018
in Fraud
elizabeth holmes of theranos

Criminal Indictment Filed Charging Fraud

The fallout continues for Elizabeth Holmes and Sunny Balwani, respectively the CEO and COO of Theranos. The pair were charged with fraud by the SEC and were indicted last week on wire fraud and conspiracy charges. Michael Volkov reviews the cautionary tale of Theranos, outlining many of the ways Theranos defrauded investors and health care professionals.

Sometimes a fraudster is just a fraudster. They are dangerous because they can manipulate without remorse or conscience. The rise and fall of Elizabeth Holmes and Theranos is a classic story of a manipulative CEO engaged in nothing more than a classic fraud.

Holmes was once the Silicon Valley star who claimed to be a billionaire.  Her fortunes started to unravel quickly following a Wall Street Journal investigative report that uncovered massive fraud at Theranos in late 2015.  Seven months later, Theranos announced that its blood test results for the past two years were “void.”

Holmes settled SEC charges of fraud earlier this year for $50 million. Ramesh “Sunny” Balwani, the company’s former COO, was also charged, and his case is still pending.

Last Friday, the criminal shoe dropped on Silicon Valley’s glamour CEO and COO with the filing of charges against Elizabeth Holmes, the former CEO, and Balwani.  They were each charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud relating to Theranos, the company that claimed it would revolutionize medical laboratory testing of blood. (Read the indictment here).

Holmes founded the company in 2003.  Balwani worked at Theranos from 2009 to 2016.  As alleged in the indictment, Holmes and Balwani defrauded investors and health care professionals as to Theranos’ claimed new technology for collecting, testing and interpreting blood samples.

Following the basic maxim, Holmes made claims that were simply too good to be true.  She claimed that Theranos had developed a new technology that would allow quick blood tests to be completed based on a small sample, even a pinprick of blood, that would be more reliable and effective than conventional blood-testing products.

Prior to the launch of the company in 2013, Holmes and Balwani unleashed a torrent of marketing to convince investors of Theranos’ revolutionary new technology and focused their efforts on physicians and patients. Their communications were loaded with false claims and assertions that they knew were false.

The government’s indictment claims that Holmes and Balwani falsely advertised and solicited doctors and patients to use Theranos’ blood-testing laboratory services, knowing that Theranos was not capable of producing accurate and reliable results for certain blood tests.

Further, and as a separate conspiracy, the indictment alleges that Holmes and Balwani used a large number of false direct communications, marketing materials, statements to the media, financial statements and models to defraud investors about the accuracy and reliability of Theranos’ technology.

The defendants claimed that Theranos’ analyzer, referred to by various names such as TPSU, Edison and minilab, was able to perform a full range of clinical tests using small blood samples drawn from a finger stick. They also claimed that this technology produced results that were more reliable than those from conventional methods.

Holmes and Balwani knew that these claims were, in fact, false – specifically, the indictment claims they knew that the analyzer had accuracy and reliability problems, performed only a small number of tests and was slower than competing devices.

The defendants knew that Theranos was delivering to doctors and patients blood results that were inaccurate, unreliable and improperly validated. Theranos also regularly removed critical blood test results when providing results to doctors and patients.

The defendants also made numerous misrepresentations to potential investors about Theranos’ financial condition and its future prospects. For example, the indictment references the defendants’ representation to investors that Theranos conducted its tests using Theranos-manufactured analyzers, when in fact, Holmes and Balwani knew that Theranos purchased and used competitors’ commercially available analyzers to conduct the tests.

The defendants also claimed that Theranos would generate $100 million in revenues in 2014 and $1 billion in 2015 but knew that actual results would be negligible or modest, at best, for both years. The defendants falsely claimed that Theranos had valuable contracts with the U.S. Department of Defense to deploy its testing analyzer on the battlefield, when in fact, the Department of Defense had no plans to use the analyzer on the battlefield.

Theranos had established a relationship with Walgreens and planned to participate in the establishment of Walgreens’ Wellness Centers. Holmes and Balwani specifically claimed that Theranos would dramatically increase the number of Wellness Centers in Walgreens; in fact, they knew by late 2014 that Theranos’ retail rollout at Walgreens stalled because of Walgreen’s concerns with Theranos’ performance.

Holmes and Balwani falsely claimed that Theranos did not need FDA approval for its new technology while simultaneously seeking approval from the FDA as required under applicable law and regulations.

This article was republished with permission from Michael Volkov’s blog, Corruption, Crime & Compliance.


Tags: health careSECTheranos
Previous Post

Moving From Reports to Analytics

Next Post

TRACE: Debating ISO 37001

Michael Volkov

Michael-Volkov-leclairryan

Michael Volkov is the CEO of The Volkov Law Group LLC, where he provides compliance, internal investigation and white collar defense services.  He can be reached at [email protected].

Michael has extensive experience representing clients on matters involving the Foreign Corrupt Practices Act, the UK Bribery Act, money laundering, Office of Foreign Asset Control (OFAC), export controls, sanctions and International Traffic in Arms, False Claims Act, Congressional investigations, online gambling and regulatory enforcement issues. Michael served for more than 17 years as a federal prosecutor in the U.S. Attorney’s Office in the District of Columbia; for five years as the Chief Crime and Terrorism Counsel for the Senate Judiciary Committee, and Chief Crime, Terrorism and Homeland Security Counsel for the Senate and House Judiciary Committees; and as a Trial Attorney in the Antitrust Division of the U.S. Department of Justice.

Michael also maintains a well-known blog: Corruption Crime & Compliance, which is frequently cited by anti-corruption professionals and professionals in the compliance industry.

Related Posts

man holds prohibited symbol above wooden block letters spelling fraud

The Pros Who Are Key to Fighting Corporate Fraud

December 6, 2019
man in silhouette with long nose; concept of lies, deceit

Does Increased Compliance Mean More Fraud?

October 24, 2019
businessman closing briefcase full of cash

UBO Transparency, Capital Markets and Tighter AML Controls

September 19, 2019
payment data protection, fingerprint scanner

How Customers are Moving to the Frontline in FinCrime Compliance

September 6, 2019
Next Post
ISO 37001 badge

TRACE: Debating ISO 37001

Free Downloads

OFAC whitepaper cover
Compliance Job Interview Q&A
Reputation Risk Management Research

RSS SEC Litigation News

  • John Special, Defendant, and Michael Murphy, Relief Defendant, John Kenneth Davidson December 12, 2019
    SEC Obtains $3 Million Settlement in Insider Trading Action
  • Palm Beach Atlantic Financial Group, LLC and William A. Smith December 11, 2019
    SEC Charges Florida Resident and His Corporate Entity for Fraudulent Securities Offerings
  • Nanotech Engineering, Inc., Michael James Sweaney (also known as Michael Hatton), David Sweaney, and Jeffery Gange December 11, 2019
    SEC Obtains Asset Freeze to Halt Alleged Offering Fraud

Jump to a Topic:

anti-corruption anti-money laundering/AML Artificial Intelligence/A.I. automation banks Big Data blockchain board of directors board risk oversight bribery CCPA/California Consumer Privacy Act Cloud Compliance communications management corporate culture corporate governance culture of ethics cyber risk data analytics data breach data governance decision-making Dodd-Frank DOJ due diligence fcpa enforcement actions GDPR GRC HIPAA information security internal audit internet of things (IoT) KYC/know your customer machine learning monitoring regtech reputation risk risk assessment Sanctions SEC social media risk technology third party risk management tone at the top training whistleblowing
No Result
View All Result

Privacy Policy

Follow Us

  • Facebook
  • Twitter
  • LinkedIn
  • RSS Feed

Category

  • Audit
  • Compliance
  • Compliance Podcasts
  • Cybersecurity
  • Data Privacy
  • eBooks
  • Ethics
  • FCPA
  • Featured
  • Financial Services
  • Fraud
  • Governance
  • HR Compliance
  • Leadership and Career
  • News
  • Opinion
  • Resource Library
  • Risk
  • Uncategorized
  • Videos
  • Webinars
  • Whitepapers

© 2019 Corporate Compliance Insights

No Result
View All Result
  • Home
  • About
  • Articles
  • News
  • Podcasts
  • Videos
  • Whitepapers
  • eBooks
  • Events
  • Jobs
  • Subscribe

© 2019 Corporate Compliance Insights