Theranos Founder Must Face Fraud Charges Over Faulty Blood Test

(CN) – A federal judge ruled Elizabeth Holmes, the disgraced former CEO of Theranos, will have to face the bulk of charges she defrauded customers, patients and investors.

U.S. District Court Judge Edward Davila found the government has made enough of a showing that Holmes and her right-hand man Sunny Balwani, ex-president of Theranos, made material misrepresentations to investors, customers and patients.

“The (statements give) the false impression to an investor that Theranos’ business was growing, that it was a profitable company, and that it was a good investment,” Davila wrote in a 39-page order issued Monday evening.

Elizabeth Holmes, founder and CEO of now-defunct Theranos, speaks at the Fortune Global Forum in San Francisco on Nov. 2, 2015. (AP Photo/Jeff Chiu, File)

The ruling means the government must now convince a federal jury that the statements to investors constitute fraud. The trial is slated to begin Aug. 4.

At a hearing Monday, Holmes’ attorney Amy Saharia said hundreds of the blood tests developed during Theranos’ brief time on the market were accurate and that the government has only identified about eight that didn’t work.

Furthermore, Saharia argued the fraud allegations hinge not on statements made by Holmes herself, but on claims made in marketing materials and on the Theranos website.

“We don’t know how to find these statements or what they even are,” Saharia said.

Saharia also argued the government has failed to show that any of the people who used the blood-testing device and received inaccurate results were actually harmed.

But federal prosecutor John Bostic said there is an abundance of evidence that Holmes and Balwani committed fraud. He noted the pair lied to investors and customers about the Food and Drug Administration approving the blood testing kits after they knew the devices were faulty.

“Claims about FDA approval were made to assure patients about the accuracy of the tests,” Bostic said during the hearing.

Davila agreed, rejecting the bulk of Holmes and Balwani’s arguments Monday evening.

“Defendants fixate on the minute details in the indictment, like what the meaning of ‘consistently’ is,” the judge wrote. “They also argue with semantics and point out that Theranos could have an ‘expanding partnership’ with Walgreens, even if it, at one point, had ‘stalled.’ This misunderstands the relevant standard at a motion to dismiss phase.”

Holmes and Balwani did win minor concessions, however.

Davila said the government must specify what material representations were made in marketing materials and on the website and who made them.

And he dismissed nine counts of wire fraud that related to nonpaying patients – those whose insurers paid for the inaccurate blood tests. He also dismissed the same counts involving doctors, saying doctors couldn’t prove sufficient harm and lack standing.

Patients who paid for the tests out of pocket did suffer sufficient harm, Davila ruled.

Thus, investors who poured money into the business, as well as customers like Walgreens who pursued a business relationship with Theranos and patients who paid for the blood-testing device all received sufficient harm for the case to move forward, Davila ruled.

 

%d bloggers like this: