Theranos CEO Elizabeth Holmes, COO Sunny Balwani Indicted

SANTA CLARA COUNTY, CA — Los Altos Hills resident Elizabeth Holmes, 34, and Ramesh “Sunny” Balwani, 53, of Atherton, have been indicted by a federal grand jury with two counts of conspiracy to commit wire fraud and nine counts of wire fraud for their alleged roles in a multi-million dollar scheme to defraud investors and a separate scheme to defraud doctors and patients through Holmes' Palo Alto-based company, Theranos, authorities with the U.S. Department of Justice, FBI, FDA and U.S. Postal Inspection Service announced Friday.

If convicted, Holmes and Balwani face a maximum sentence each of 20 years in prison, and a fine of $250,000, plus restitution, for each count of wire fraud and for each conspiracy count.

Holmes founded Theranos —a private health care and life sciences company with the stated mission to revolutionize medical laboratory testing through allegedly innovative methods for drawing blood, testing blood and interpreting the resulting patient data — in 2003 and served as its CEO.

Balwani was employed at Theranos from September of 2009 through 2016, working in several capacities including as a member of the company’s board of directors, as its president and as its chief operating officer.

According to the indictment, Holmes and Balwani used advertisements and solicitations to encourage and induce doctors and patients to use Theranos’s blood testing laboratory services, even though the defendants knew Theranos was not capable of consistently producing accurate and reliable results for certain blood tests. The tests performed on Theranos technology, in addition, were likely to contain inaccurate and unreliable results, prosecutors said.

The indictment alleges that the defendants "used a combination of direct communications, marketing materials, statements to the media, financial statements, models, and other information to defraud potential investors. Specifically, the defendants claimed that Theranos developed a revolutionary and proprietary analyzer that the defendants referred to by various names, including as the TSPU, Edison, or minilab."

The defendants claimed the analyzer was able to perform a full range of clinical tests using small blood samples drawn from a finger stick, the grand jury found. The defendants also allegedly represented that the analyzer could produce results that were more accurate and reliable than those yielded by conventional methods—all at a faster speed than previously possible.

The indictment further alleges that Holmes and Balwani knew that many of their representations about the analyzer were false.

"For example, allegedly, Holmes and Balwani knew that the analyzer, in truth, had accuracy and reliability problems, performed a limited number of tests, was slower than some competing devices, and, in some respects, could not compete with existing, more conventional machines," the grand jury found.

"This district, led by Silicon Valley, is at the center of modern technological innovation and entrepreneurial spirit; capital investment makes that possible," said Acting U.S. Attorney Alex G. Tse. "Investors large and small from around the world are attracted to Silicon Valley by its track record, its talent, and its promise. They are also attracted by the fact that behind the innovation and entrepreneurship are rules of law that require honesty, fair play, and transparency. This office, along with our other law enforcement partners in the Bay Area, will vigorously investigate and prosecute those who do not play by the rules that make Silicon Valley work. Today’s indictment alleges that through their company, Theranos, CEO Elizabeth Holmes and COO Sunny Balwani not only defrauded investors, but also consumers who trusted and relied upon their allegedly-revolutionary blood-testing technology."

"This indictment alleges a corporate conspiracy to defraud financial investors," said Special Agent in Charge John Bennett. "This conspiracy misled doctors and patients about the reliability of medical tests that endangered health and lives."

"The conduct alleged in these charges erodes public trust in the safety and effectiveness of medical products, including diagnostics," said Catherine A. Hermsen, acting director, FDA Office of Criminal Investigations.The FDA would like to extend our thanks to our federal law enforcement partners for sending a strong message to Theranos executives and others that these types of actions will not be tolerated."

"The United States Postal Inspection Service has a long history of successfully investigating complex fraud cases," said Inspector in Charge Rafael E. Nuñez. "Anyone who engages in deceptive practices should know they will not go undetected and will be held accountable. The collaborative investigative work on this case conducted by Postal Inspectors, our law enforcement partners, and the United States Attorney’s Office illustrates our efforts to protect both consumers and investors."

PREVIOUS COVERAGE:

• WATCH: '60 Minutes' Revisits Theranos, Elizabeth Holmes Scandal
• Theranos Settles SEC Lawsuit; CEO Elizabeth Holmes Steps Down

PHOTO: NEW YORK, NY - SEPT. 29, 2015: Elizabeth Holmes (R) speaks as former U.S. President Bill Clinton (L) listens during the closing session of the Clinton Global Initiative 2015 on September 29, 2015 in New York City. (Photo by JP Yim/Getty Images)