Theranos, a U.S. privately held health-technology and medical-laboratory-services company based in Palo Alto, California is under criminal investigation by federal prosecutors and the Securities and Exchange Commission, but one of the firm’s biggest investors has sued the founder for false statements when attempting to attract investment to the tune of $100 million, according to The Wall Street Journal.
The suit was filed by San Francisco-based Partner Fund Management in Delaware Court of Chancery on Monday October 10. A letter sent to investors of Partner Fund Management said, “Through a series of lies, material misstatements, and omissions, the defendants engaged in securities fraud and other violations by fraudulently inducing PFM to invest and maintain its investment in the company.”
The letter accuses Theranos, founder Elizabeth Holmes and a former executive of deception by claiming that “proprietary technologies that worked” had been developed and were close to regulatory approval.
A spokesman for Theranos responded by saying: “the suit is without merit and Theranos will fight it vigorously. The company is very appreciative of its strong investor base that understands and continues to support the company’s mission.”
Investments so far in the company have amounted to approximately $800 million, but in the last 12 months the company has kept silent on reports last October by The Wall Street Journal that the firm’s operations and technology were lacking.
Claims by Holmes that Theranos could accurately perform dozens of tests using a few drops of blood stimulated a valuation of $9 billion for a round of fundraising in 2014. However, The Wall Street Journal’s found that the flagship technology was only used for a small number of tests, relied on devices made by conventional manufacturers and patient test results were unreliable.
Theranos’ struggles have continued and the firm has rejected test results and lost a blood-testing license in California, which it is appealing. The firm faces civil and criminal investigations. Holmes can no longer work in labs until the appeal is settled, and testing operations were shut down in Arizona. The firm plans to change its focus and create new technology for commercial use rather than blood-testing but still with the goal of reducing the cost of blood testing.
According to The Wall Street Journal, Partner is seeking damages in excess of its investment, $96.1 million in February 2014.
In December 2013, in a pitch to Partner executives, Holmes and former chief operating officer Sunny Balwani inflated the number and types of test their technology could perform. The suit also alleges that Theranos was untruthful about the status of FDA approval and its ability to meet the obligations it had agreed to with Walgreens Boots Alliance Inc. Walgreens deserted the partnership in June 2016.