FALSE CLAIMS

Dissolution: The Final Act of the Theranos Tragedy

Just five years ago, Theranos was a Silicon Valley sensation with a valuation of over $9 billion. While black turtlenecked Elizabeth Holmes supplied the charisma, the heart of the Theranos phenomenon was its finger-stick blood test technology offering not only accuracy but groundbreaking convenience.

But it was all a mirage. And now it’s coming to an end.

Faulty Technology
The technology proved unreliable. In fact, Theranos often used analyzers from other companies to test consumer blood samples. What’s more, Theranos modified some of those analyzers in ways that were not approved by the manufacturers or consistent with federal health agency guidelines. Because of the modifications, test results were often inaccurate.

Financial Fallout
As a result of testing issues, an agreement with Walgreens—which had been the company’s steppingstone to the consumer market—unraveled. The drugstore chain sued the company for breach of contract and was awarded damages.

In April 2017, Theranos settled charges with CMS agreeing to a $30,000 fine and two-year Medicare exclusion.

Determined to carry on, Theranos refocused its business, shedding its CLIA lab testing and concentrating on technology. Layoffs followed. The company, which once reportedly employed 800, was down to fewer than 25 employees earlier this year.

Criminal Conduct Alleged
Things went from bad to worse.

According to The Wall Street Journal, Holmes and her ex-boyfriend, Ramesh “Sunny” Balwani, who served as Theranos president and chief operating officer until he retired from the company in May 2016, have been indicted on nine counts of wire fraud and two counts of conspiracy to commit wire fraud. [Editor’s Note: John Carreyrou, The Wall Street Journal reporter whose articles exposed the Theranos fraud, will speak at Lab Institute 2018, being held in Washington, DC, Oct. 24-26.]

If convicted of charges, which allege that they defrauded investors out of hundreds of millions of dollars, while also defrauding doctors and patients, Holmes and Balwani each faces up to 20 years in prison and a fine of $250,000, plus restitution to those found to have been defrauded—on each count.

Corporate Dissolution
Against this backdrop, it perhaps comes as no surprise that in an email to shareholders the company has now announced it has ceased operations and will formally dissolve.

Theranos indicates that before arriving at this decision, it pursued a sale. However, after reaching out to more than 80 potential buyers, no deal materialized.

The company owes at least $60 million to unsecured creditors, according to the email. As part of its dissolution, Theranos will distribute its remaining cash, estimated to be approximately $5 million, to unsecured creditors.

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