Diagnostics

Theranos investor sues diagnostics business for securities fraud

Theranos is facing a legal battle with Partner Fund Management, which invested $96.1 million in the business.

A court gavel on 100 bills - legal concept

Theranos has defied critics with its continual push forward despite all indications that it should just call it quits. It’s had more death knells than Donald Trump’s presidential campaign. From the ban on Founder Elizabeth Holmes from running a clinical lab for two years to voiding two years’ worth of blood test results before abandoning its blood testing business altogether in favor of new products such as the miniLab, it is tough to see how Theranos can overcome these seemingly insurmountable obstacles.

So the news that Theranos now faces a legal battle from a major investor, Partner Fund Management, alleging securities fraud, might finally be the company’s undoing. The Wall Street Journal cited a letter that San Francisco-based Partner Fund Management penned to investors and noted that the investment firm had poured $96.1 million into Theranos in 2014.

“Through a series of lies, material misstatements, and omissions, the defendants engaged in securities fraud and other violations by fraudulently inducing PFM to invest and maintain its investment in the company,” the letter said.

The suit, filed in Delaware Court of Chancery,  also claims that Theranos overstated the scope of its submissions for U.S. Food and Drug Administration approval and its ability to meet the obligations with Walgreens with which it had partnered to provide blood testing services in the retail chain’s Arizona stores. The paper cited a person familiar with the suit.

Theranos, for its part, has claimed that the suit is without merit, the paper noted.

If other Theranos investors join Partner Fund Management’s suit or file lawsuits of their own, the legal costs plus the company’s other expenses may be too much to bear.

Theranos remains a cautionary tale on the importance of due diligence, particularly those companies boasting disruptive technologies for healthcare and life sciences.

Photo: Getty Images

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