Federal prosecutors filed criminal charges against Theranos Inc. founder Elizabeth Holmes and the blood-testing company’s former No. 2 executive, Ramesh “Sunny” Balwani, alleging that they defrauded investors out of hundreds of millions of dollars and defrauded doctors and patients, the Wall Street Journal reports. The indictments culminate a 2½-year investigation by the U.S. Attorney’s office in San Francisco after the Journal raised questions about the company’s technology and practices. Holmes, 34, and Balwani, 53, were each charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud. FBI agent John Bennett in San Francisco said, “this conspiracy misled doctors and patients about the reliability of medical tests that endangered health and lives.”
Coming three months after civil fraud charges filed by the Securities and Exchange Commission against Theranos, Holmes and Balwani, the criminal charges are a warning shot for Silicon Valley, where hundreds of private tech startups valued at more than $1 billion “have sprouted, embracing a culture of disruption of incumbent industries and a cavalier attitude toward regulations.” the Journal said. Holmes sought to disrupt the blood-testing business. At the height of her fame, the Stanford dropout claimed to have invented groundbreaking new technology that could run the full range of laboratory tests on just a drop or two of blood pricked from a finger. As the Journal reported in articles beginning in 2015, Theranos’s blood-testing device was unreliable and the company used it for just a small fraction of the more than 240 tests it offered to consumers. Theranos is on the verge of liquidation.