Theranos in Criminal Probe

Federal officials are investigating whether the diagnostics company misled investors.

By | April 19, 2016

Theranos CEO Elizabeth HolmesWIKIMEDIA, MAX MORSE FOR TECHCRUNCHBlood-testing company Theranos continues its downward spiral, from a promising biotech with intriguing—yet mysterious—innovations to a company under investigation for criminal activity. In an April 18 company memo distributed by Business Insider, Theranos disclosed that the Securities and Exchange Commission (SEC) and the US Attorney’s Office were conducting investigations into the firm.

As The Wall Street Journal reported, prosecutors are “examining whether Theranos misled government officials, which can be a crime under federal law,” while the SEC is “examining whether Theranos made deceptive statements to investors when it solicited funding.”

The company, which offers finger-prick, blood-based tests for certain medical conditions, was already in trouble with the Centers for Medicare and Medicaid Services over concerns of substandard laboratory conditions. And skepticism has been mounting over just how well Theranos’s tests work.

CEO Elizabeth Holmes yesterday (April 18) told NBC’s Today that her company had stopped testing and has “taken the approach of saying, ‘Let’s rebuild this entire laboratory from scratch. So that we can ensure it never happens again.’”

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Avatar of: dmarciani

dmarciani

Posts: 53

April 20, 2016

You can blame Theranos as much as you want, but what they did is not different from what many biotech companies do. The question is how the financiers opened their pockets without carrying first and after a thorough due diligence? Evidently, a review by people with expertise in the field would have detected flaws in the proposed approach and raised red flags. Evidently, the financiers were more focused on window dressing and preparing the road show, rather than checking if the technology was worthwhile.  

Avatar of: FJScientist

FJScientist

Posts: 28

Replied to a comment from dmarciani made on April 20, 2016

April 20, 2016

Agree with dmarciani that the investors may be culpable in this. Let's hope this apparent farce doesn't have long-standing, negative impact on future investment in the biotech sector.

I have been following Theranos for a couple of years and have been mystified that due diligence apparently was thrown out the window. Even though the technical basis for Theranos was 'hidden' (i.e. potentially absent) from the outset, it appears that investors wanted in on the ground floor and stampeded for a quick exit/return. Ideally, the early stage (and later stage) investors would have done their due diligence and had access to the hidden information that swayed them to invest in Theranos. Apparentlly, they did not.

Of course, we don't know the facts which is why the investigations are warranted. Prudent, long-term investment practices require that one starts by distinguishing snake-oil from a beneficial product. The additional concern is that the early stage investors knew or suspected that there was ittle foundation for the company but invested anyway because they foresaw an opportunity for a quick exit with a healthy margin. We'll see what comes out of the investigation but agree that the role of deficient investment practices is likely a equally signficant component of this debacle and should be included in the investigation.

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