What the Grand Jury Found, June 2018

On 14 June 2018, a federal grand jury in the Northern District of California returned a twelve-count indictment against Elizabeth Holmes, founder and chief executive of Theranos, and Ramesh Balwani, the company's former president and chief operating officer. The charges: two counts of conspiracy to commit wire fraud and ten counts of wire fraud. The indictment followed an earlier Securities and Exchange Commission civil complaint filed in March 2018, which Holmes settled without admitting wrongdoing, agreeing to pay a $500,000 penalty and relinquish voting control of the company. Balwani did not settle with the SEC at that stage.

The grand jury's document is a compact and specific record. It identifies two distinct fraud schemes running concurrently. The first targeted investors, to whom Holmes and Balwani allegedly represented that Theranos technology could perform a comprehensive range of clinical tests from a finger-stick blood sample with accuracy matching or exceeding conventional laboratory methods. The second targeted patients, who were told the same thing and made medical decisions — including decisions about cancer treatment and pregnancy — on the basis of results the government alleged were systematically unreliable.

The SEC complaint, which incorporated much of what became the criminal record, identified specific claims Theranos made in its pitch materials. The company reported to prospective investors that it had achieved revenues of more than $100 million for the year ended December 2014. The actual figure, as the SEC established, was approximately $100,000. The company's claimed valuation at its peak — widely circulated in press coverage including a 2014 Fortune profile — reached $9 billion, placing Holmes on magazine covers as the youngest self-made female billionaire in American history. That valuation rested on a private-placement price that itself depended on the revenue and technology claims the indictment describes as fraudulent.

The technology claims are where the record becomes most technical. Theranos had developed a proprietary device it called the Edison. Internal validation data, reviewed by the Centers for Medicare and Medicaid Services during a 2015 inspection of the company's Newark, California laboratory, showed the device performing outside acceptable accuracy ranges on a significant number of assays. For the majority of tests it offered commercially, Theranos was running samples on conventional Siemens and other third-party analyzers, then modifying or not disclosing which instrument had produced the result. The indictment alleges Holmes and Balwani knew this and continued to represent to investors and patients that the Edison was the instrument in use.

The CMS inspection resulted in a letter in January 2016 proposing to revoke the company's laboratory certificate and ban Holmes personally from operating a clinical laboratory. By that point, investigative reporting in The Wall Street Journal — beginning with a front-page article by John Carreyrou in October 2015 — had already placed the technical claims under public challenge. The company's response at the time was to deny the reporting and threaten litigation.

Holmes was tried separately. After a trial lasting approximately thirteen weeks in the United States District Court for the Northern District of California, the jury returned its verdict on 3 January 2022. Holmes was convicted on four counts: one count of conspiracy to defraud investors and three counts of wire fraud against individual investors. She was acquitted on four counts related to patient fraud and the jury deadlocked on three remaining counts. She was sentenced in November 2022 to eleven years and three months in federal prison.

Balwani was tried separately beginning in March 2022. The jury convicted him in July 2022 on all twelve counts with which he was charged — the full set, including the patient fraud counts on which Holmes had been acquitted. He was sentenced in December 2022 to nearly thirteen years in federal prison.

The case is the most extensively documented instance of investor fraud to emerge from Silicon Valley in the period covered by this guide. Its institutional record — the indictment, the SEC complaint, the CMS inspection letters, and the trial transcripts — establishes that the company raised approximately $945 million from investors (a figure cited in the Department of Justice's sentencing materials) on the basis of representations the court found to be false.