Theranos Inc. co-founder Elizabeth Holmes, who’s being sued by state and federal officials over allegedly misleading investors about the company’s success, failed to provide any substantive response to prosecutors, according to a filing.
“It is apparent that [Holmes] has no intention of meeting her obligations and taking responsibility for all wrongdoing,” Assistant Attorney General John Chagnon wrote in a lawsuit seeking at least $1 million in civil penalties and an order requiring further refunds.
Holmes, 28, founded Theranos in 2003. She rose to prominence in 2013 when she stunned Silicon Valley as she pledged to change medicine and insurance industry. Her company was supposed to create blood-testing technology that was faster and cheaper than those produced by major players such as LabCorp and Quest Diagnostics. Theranos made about $150 million in revenue that year, the documents say. In 2014, Holmes was named one of Time magazine’s 100 most influential people.
In 2014, an independent review panel commissioned by Theranos concluded that the company “did not disclose critical aspects of the clinical development process and its operating business” and that it’s “suspect that they were selective and misleading in their disclosure,” according to the court filings.
Investigators allege the company marketed and sold itself with “misleading and intentionally fraudulent assertions about the performance of its technology.” Theranos announced in a letter sent to investors in 2014 that it was completing 50,000 tests a day, which “relied on a very small number of customer access points,” and that it had 42,000 accounts as of September 2014, the prosecutors said.
The company never had a laboratory operating laboratory to deliver results to customers and that it didn’t have a customer service-focused business, according to the prosecutors. Theranos marketed and sold its services “without disclosing that its technology was significantly less effective than comparable technologies” on analyses of particular types of blood, the records show.
The state of California also is suing Theranos for allegedly violating a regulatory mandate requiring it to have a laboratory operation license. That suit, which sought civil penalties and an order barring the company from operating in California, was filed after Holmes resigned last month as executive chairman.
In a statement responding to prosecutors’ allegations in the filing, Theranos said that it “wholeheartedly” supports the investigation.
“We are disappointed that Ms. Holmes has refused to participate,” Melinda MacLean, the company’s chief executive officer, said in the statement. “We believe the state of California’s complaint contains substantial factual errors and does not accurately reflect our commercial and scientific performance.”
She added that Theranos “has provided detailed documentation of the work our team did to support the statements the state is now challenging.”
The company said the complaint includes factual inaccuracies and omitted large portions of its response.
Theranos didn’t name the alleged misleading statements or the positive market responses to those statements, and did not provide information on its approval from the Centers for Medicare and Medicaid Services and clinical research performed in partnership with the University of Pittsburgh. “We will not speculate about an opinion of a regulatory body that the company and the people whose reports it relied upon fundamentally disagreed with,” MacLean said.
The company maintains that the state’s case is an effort by the regulators to “harass and monopolize” Theranos, not to thoroughly investigate its business practices. The case continues in federal court, although a date has not been set.
Investigators allege that Holmes and several other current and former employees made a series of false representations. They also alleged that Holmes provided a false certification to the Centers for Medicare and Medicaid Services as part of the company’s application for a clinical research facility license.
Theranos has built four Walgreens pharmacies in Florida and has a site in a Bay Shore, N.Y., hospital, according to the complaint.
“In other words, Theranos is now closing its Oasis Network in Florida at the behest of third parties who are upset that Walgreens is a partner,” said Tom Picciotto, an attorney with Pinsent Masons, who has been working to bring clarity to the company’s business practices for the past two years.
Citing complaints from an unnamed author and another journalist, the prosecutors also allege that the company attempted to replace Theranos’ scientist, Robert Morrison, by replacing him with a lab technician whose conduct was deemed unsatisfactory.
Another executive and former chief financial officer were part of a group of 10 employees that a whistleblower provided evidence implicating in possible criminal conduct, the prosecutors allege.