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Former billionaire CEO charged with fraud by SEC

Elizabeth Holmes speaks at the Clinton Global Initiative 2015. She has been charged with fraud by the SEC. (Photo by JP Yim/Getty Images)

The Securities and Exchange Commission charged the founder and CEO of blood-testing company Theranos with fraud on Wednesday. In a settlement deal, Elizabeth Holmes agreed to relinquish her control of the company and pay a $500,000 fine.

Former Theranos president Ramesh Balwani also faced the charge due to his participation in raising over $700 million from investors for the firm, by allegedly "exaggerating or lying about the business and its technology."

Jina Choi, director of the SEC's San Franscisco regional office said, "Innovators who seek to revolutionize and disrupt an industry must tell investors the truth about what their technology can do today, not just what they hope it might do someday."

Theranos was founded by Holmes in 2003 when she was only 19 years old. The company boasted of developing a cheaper, less invasive blood testing technology and at one point had a valuation of $9 billion. It also developed a machine called 'Edison,' which was purportedly capable of testing for an array of diseases using only a sample of a few drops of blood.

At a commencement ceremony in 2015, Holmes explained to the audience, "We code-named our product the Edison because we assumed we'd have to fail 10,000 times to get it to work the ten-thousandth-and-first."

A Wall Street Journal report published in October 2015 alleged that the company's proprietary technology was a fraud. The article cited interviews from former Theranos employees who claimed that most blood samples were actually tested with traditional machines, instead of the highly-touted Edison.

The following year, the Centers for Medicare and Medicaid Services imposed sanctions on Theranos, revoking the lab's blood testing license and ordering it to pay a fine. Within months, the company laid off more than 40 percent of its full-time workers and began shutting down its wellness centers and clinical labs.

At one point lauded as the world's youngest self-made billionaire, Holmes now reportedly has a net worth of "zero," according to Forbes. The SEC said Holmes will not profit from a future sale or liquidation of her former company until investors have been reimbursed a minimum of $750 million.

Holmes has had past political ties to the Clinton family, via her hosting a fundraiser for Hillary Clinton, serving on a panel discussion with Bill Clinton for the Clinton Global Initiative, and being pictured with Chelsea Clinton at a San Francisco fundraiser for Secretary Clinton's presidential campaign.

 

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