The Wall Street Journal and other media are reporting that Theranos is now the defendant of a securities fraud lawsuit brought by one of its major investors. The plaintiff is San Francisco hedge fund Partner Fund Management, which is one of the blood testing company’s largest financial backers. Partner, which brought its case in the Delaware Court of Chancery, is seeking damages beyond its investment and costs related to the lawsuit.
Although the complaint is under seal, Partner has confirmed that it has brought a legal case against the beleaguered blood testing company. According to a letter, which the hedge fund sent to investors, Theranos took part in “lies, material misstatements, and omissions” to persuade Partner to invest in the company. The letter notes that Theranos CEO/founder Elizabeth Holmes and ex-President Sunny Balwani are also defendants in the case.
Partner Fund believes that Holmes was deceptive when claiming that Theranos’s proprietary technologies were working and close to receiving regulatory approvals. Meantime, Theranos has stated that it would combat the securities fraud lawsuit.
Holmes claimed that her company could accurately conduct dozens of tests using just a few drops of bloods. In a 2014 fundraising round, Theranos’ valuation was at $9B valuation.
However, according to The WSJ, which conducted an investigation, Theranos’ flagship technology had only been conducted on a small amount of tests, the company depended on devices from conventional manufacturers, and there were test results given to patients that may not have been correct.
Since then, Theranos has declared tens of thousands of test results void, its blood-testing license at a lab in California was revoked, and Theranos announced that it would shut down its lab operations and concentrate on miniature medical testing machines.
It was in April that Theranos became the subject of investigations by the U.S. Attorney’s Office for the Northern District of California and the U.S. Securities and Exchange Commission. Those probes came following news that the blood testing company was under investigation by state and federal health regulators. In one inspection, conducted by the Centers for Medicare and Medicaid Services at the Theranos lab in Newark, CA, the agency reportedly found problems at the lab serious enough to place patients’ health in jeopardy, failures with quality control standards, inadequate documentation, unqualified personnel, and other issues.
Theranos investor: We want our $96M back, CNN, October 11, 2016