04/11/2020 by On behalf of Law Office of Michael S. Rothman | Sep 26, 2018 | Fraud, White Collar Crimes |
Theranos founder and former president face federal fraud charges
Theranos founder Elizabeth Holmes and the former president Ramesh Balwani were indicted on charges of federal wire fraud and conspiracy to commit wire fraud.
According to The New York Times, the two defendants are accused of lying to doctors, investors and patients about how well the company’s blood-testing device worked. The device was portrayed as groundbreaking for the blood testing industry.
SEC settles civil fraud charges
Holmes and Theranos did settle civil fraud charges with the Securities and Exchange Commission (SEC) back in March. The SEC alleged the company raised more than $700 million from investors by representing that a Theranos blood analyzer could conduct complex blood tests from a few drops of blood. The government agency also stated the company’s device could only finish a small number of tests, and that Theranos used other companies more complex analyzers to conduct patient tests.
Though Holmes did not accept blame for the civil fraud charges, she did agree to the punishment doled out by the SEC. She paid a $500,000 penalty fee, gave up her voting control of the company and agreed to not serve as an officer for a publicly-traded company for 10 years. She has also stepped down as CEO of Theranos.
Federal wire fraud charges pending
Federal wire fraud occurs when a person uses communication devices to relay information across state boundaries to get something of value. In the case of Theranos, Holmes and Balwani secured financing from investors by misleading them about the company’s prospects. The fraud conspiracy charges relate to an advertising campaign directed at doctors and patients. The campaign urged both parties to have blood tests completed through a partnership between Theranos and Walgreens.
Proving wire fraud
To prove that wire fraud occurred, the prosecution must show that an individual intended to defraud someone, an individual knew he or she was defrauding someone, wire communication crossed state lines and the individual planned to use the communications to perpetuate the fraud.
A person that is convicted of wire fraud can face charges for each fraudulent act. That means for each act of wire fraud, an individual could face up to 20 years in prison and fines of up to $250,000.
The former CEO and former president of Theranos have each been indicted on two counts of wire fraud conspiracy and nine counts of wire fraud.