Startups, Diagnostics

The Theranos death knell? A criminal probe is now underway

Theranos is now embroiled in a criminal investigation, the Wall Street Journal reported, with federal prosecutors questioning whether the beleaguered diagnostics company misled government officials and, importantly, its investors.

Elizabeth Holmes should certainly be “devastated,” as the Theranos CEO admitted Monday morning on “Today.” 

Theranos is now embroiled in a criminal investigation, the Wall Street Journal reportedwith federal prosecutors questioning whether the beleaguered diagnostics company misled government officials and, importantly, its investors.

Federal health regulators have already proposed banning Holmes from the diagnostics business for two years when they found she hadn’t done enough to resolve major issues in its laboratories.

Despite these issues, Theranos announced Monday that it will unveil information about its proprietary technologies in August at the American Association for Clinical Chemistry conference.

Both Walgreens and the New York State Department of Health have been subpoenaed in recent weeks, sources told the JournalInvestigators reportedly are asking for documents and testimonies about how Theranos represented its technology.

Walgreens provided the consumer face for Theranos since they partnered up in 2013, with 40 Theranos wellness centers at different Arizona Walgreens. And the New York health department received an application to get a laboratory license in the state, the Journal said. Misleading government officials can be a federal crime, the Journal pointed out.

The company, based on investments, was valued at $9 billion after a 2014 funding round, with Holmes worth half that, and Walgreens likely invested about $50 million into the company, according to the Journal.

The Securities and Exchange Commission is said to be examining whether Theranos misrepresented its technology when pitching to investors:

The SEC has been paying closer attention recently to ensuring that large private technology firms properly inform investors about their finances and valuations. In a speech at Stanford University late last month, SEC Chairwoman Mary Jo White said: “The risk of distortion and inaccuracy is amplified because start-up companies, even quite mature ones, often have far less robust internal controls and governance procedures than most public companies.”

Photo: TEDMED

 

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