Theranos founder hit with criminal charges

Theranos founder Elizabeth Holmes was accused of

Theranos founder Elizabeth Holmes was accused of"massive fraud by the SEC in March

They also told investors the company's partnership with Walgreen's for blood-testing "Wellness Centers" was expanding, when in reality it was stalled because executives at the pharmacy giant "had concerns with Theranos's performance", the indictment says.

Holmes agreed in March to settle "massive fraud" charges with the Securities and Exchange Commission under which she was barred from serving as an officer or director of a public company for 10 years.

She and Balwani pitched a tale in investor presentations, product demonstrations and media articles about the startup's key product - a portable blood analyzer - which they claimed could revolutionize the industry by inexpensively conducting comprehensive tests from drops of blood from fingers. The two allegedly knew there were "accuracy and reliability problems", and that it "could not compete with existing, more conventional machines", the US Attorney's office said.

"This indictment alleges a corporate conspiracy to defraud financial investors", said John F. Bennett, special agent in charge of the Federal Bureau of Investigation in San Francisco.

The criminal charges disclosed Friday go well beyond the SEC's civil allegations, which Balwani has contested. Balwani faces those charges in court. The company's general counsel, David Taylor, will take over as CEO. Holmes remains the company's chairman.

The indictment also claims that the defendants represented to investors that Theranos would generate $100 million in revenues and break even in 2014 and that the company expected about $1 billion in revenues the following year.

Federal authorities allege there was a second scheme to defraud doctors and patients, saying "many hundreds of patients paid, or caused their medical insurance companies to pay" for blood tests that were advertised as accurate and reliable. Jeffrey Coopersmith, Balwani's attorney, said his client had committed no crimes. For Theranos founder Elizabeth Holmes, it may end up taking the form of a jail cell. "Mr. Balwani looks forward to trial because he did not defraud anyone, and it will be an honor to defend him vigorously", he said.

The punishment sounds heavy, but so does the alleged nature of the crime - potentially putting people's lives at risk with inaccurate blood test results.

The Wall Street Journal reported in April that Theranos would cut its workforce "from about 125 employees to two dozen or fewer", according to sources familiar with the matter.

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