Elizabeth Holmes, founder and former CEO of Theranos Inc., and Ramesh “Sunny” Balwani, former president of Theranos Inc., have each been charged with conspiracy to commit wire fraud against investors, conspiracy to commit wire fraud against doctors and patients, and nine counts of wire fraud. If convicted, Holmes and Balwani each face a maximum sentence of twenty years in prison and a fine of $250,000 plus restitution to those found to have been defrauded.

The indictment alleges that between approximately 2013 and 2016, Holmes and Balwani, through advertisements and solicitations, encouraged and induced doctors and patients to use Theranos’ blood testing laboratory services.

These allegations against Ms. Holmes, Mr. Balwani, and Theranos Inc. are just the most recent in an extensive series of similar allegations involving Theranos’ advertising of the use of its proprietary patented technology to offer a range of diagnostic tests from only a few droplets of blood. Ms. Holmes and Theranos Inc. have, so far, settled all civil suits involving such allegations without admission of guilt or liability:

WALGREEN, CO., v. THERANOS, INC.

On June 5, 2012, Walgreens and Theranos entered into a Master Service Agreement that provided a framework under which “Theranos Wellness Centers” could operate inside Walgreens stores. “Theranos Wellness Centers” would be operated by technicians who would collect blood samples using Theranos’ finger-stick technology. Those blood samples would be then be tested at one of two CLIA-certified labs owned and operated by Theranos from which the results would be sent to the requesting physician, who would provide the information to the patient.

On January 28, Walgreens issued a notice of breach of that MSA to Theranos due to deficiencies revealed in a letter to Theranos from the Centers for Medicare & Medicaid Services (CMS) informing Theranos that CMS found their Newark lab was not in compliance with CLIA requirements, and that they would be subsequently required to submit to CMS a proposed plan of correction.

Following a March 18, 2016 letter to Theranos from CMS revealing that Theranos’ plan of correction had been rejected, Walgreens sent a letter to Theranos terminating the MSA for cause, stating that Theranos failed to perform its obligations under the warranty clause of the MSA. Walgreens then closed all Theranos Wellness Centers, and in November of 2016, sued Theranos, accusing them of a breach of contract. Walgreens and Theranos settled for an undisclosed amount in August of 2017, resolving all claims without admission of liability from Theranos.

CMS SANCTIONS

On July 7, 2016, CMS issued its final determination regarding Theranos’ Newark lab. In the letter, CMS explained that after it had rejected Theranos’ initial proposed plan of corrections, it received a total of five collective submissions for corrections from Theranos, all of which CMS ultimately rejected. The letter imposed sanctions against Theranos, including revocation of the Newark lab’s CLIA certification, and prohibited Holmes from owning, operating, or directing a laboratory for at least two years. On August 25, 2016, Theranos, announced that it filed a notice of intent to appeal those sanctions. In April of 2017, Theranos reached a settlement with CMS, paying $30,000 and agreeing that their owners and operators would not own or operate a clinical laboratory within the following two years.

STATE OF ARIZONA

On April 18, 2017, Theranos reached a settlement with the Arizona Attorney General’s office, who alleged that Theranos’ advertisements misrepresented the method, accuracy, and reliability of its blood testing and that the company was out of compliance with CLIA regulations. Theranos agreed to reimburse Arizona residents for all amounts they paid for Theranos blood testing services between 2013 and 2016, returning $4.65 million to Arizona consumers, settling with no admission of liability.

PARTNER FUND MANAGEMENT

On October 11, 2016, Partner Fund Management, a hedge fund that invested $96.1 million in Theranos in 2014, filed two civil suits against Theranos, alleging the company had “engaged in securities fraud and other violations by fraudulently inducing PFM to invest and maintain its investment in the company.” In May of 2017, these lawsuits were settled for an undisclosed amount, resulting in the dismissal of all claims by PMF against Theranos.

SECURITIES AND EXCHANGE COMMISSION vs. ELIZABETH HOLMES and THERANOS, INC.

On March 14, 2018 Holmes and Theranos settled with the Securities and Exchange Commission, who alleged Theranos, Holmes and Balwani “raised more than $700 million from late 2013 to 2015 while deceiving investors by making it appear as if Theranos had successfully developed a commercially-ready portable blood analyzer that could perform a full range of laboratory tests from a small sample of blood.” They also alleged that Elizabeth, Balwani, and Theranos deceived investors by, “among other things, making false and misleading statements to the media, hosting misleading technology demonstrations, and overstating the extent of Theranos’ relationships with commercial partners and government entities, to whom they had also made misrepresentations.” Holmes settled to pay a $500,000 fine and remain ineligible to serve as a director or officer of a publicly traded company for a period of 10 years. She also agreed to return approximately 18.9 million shares of stock and relinquish her super-voting equity rights. Holmes and Theranos settled with no admission of liability.

The allegations of conspiracy and wire fraud in the current indictment mimic the allegations of deceptive advertisements and misleading misrepresentations brought against Elizabeth Holmes, Sunny Balwani, and Theranos in previous civil lawsuits; it will be interesting to see if the conclusion of guilt and liability, or lack thereof, does as well.

If you have been falsely accused of committing a white collar crime, such as conspiracy or wire fraud, or are somehow involved in one, it is important that you engage yourself with an experienced and dedicated attorney. At Elliott Sauter, PLLC, our proactive approach to your defense starts with a detailed account of your investigation. For us to pursue the best plan based on your specific circumstances we need to understand the full scope of the case. Whatever your role in the investigation, you need to know your options. Often, as exemplified in the case of Theranos, federal white collar criminal cases get intertwined with civil cases. You want an experienced attorney who understands both sides of this process to help you find the best available option.