Inc., the blood-testing company accused of perpetrating Silicon
Valley’s biggest fraud, will soon cease to exist.
move comes after federal prosecutors filed
against Theranos founder Elizabeth
Holmes and the blood-testing company’s former No. 2 executive,
alleging that they defrauded investors out of hundreds of
millions of dollars and defrauded doctors and patients.
executives have denied the charges and face a coming criminal
dissolution process was precipitated by the fact that Theranos
breached a covenant governing a $65 million loan it received
from Fortress Investment Group last year. Under the loan
terms, Fortress was entitled to foreclose upon the company’s
assets if its cash fell beneath a certain threshold.
the email to shareholders, sent Tuesday, Theranos General
Counsel and Chief Executive Officer David Taylor said the
company is trying to negotiate a settlement with Fortress that
would give the New York private-equity firm ownership of the
company’s patents but leave its remaining cash—estimated at
about $5 million—for distribution to other unsecured
a liquidation process known as “an assignment for the benefit
of creditors,” getting that remaining cash to the unsecured
creditors could take six to 12 months, Mr. Taylor said in the
email. Most of Theranos’s two-dozen remaining employees worked
their last day on Friday, Aug. 31. Only Mr. Taylor and a
handful of support staff remain on the payroll for a few more
Street Journal investigative reporter John Carreyrou
recounts some of the more unusual experiences he had while
uncovering the story of Theranos's business practices.
action followed a failed bid to sell the company. Over four
months, investment bank Jefferies Group LLC reached out on
Theranos’s behalf to more than 80 potential buyers, and
executed nondisclosure agreements with 17 of those parties,
the email said, adding: “We assisted those parties with
diligence and had numerous follow-on conversations.”
big-name investors who poured money into Theranos will get
nothing. All told, investors in Theranos have lost nearly $1
founder and chairman, Ms. Holmes, and her ex-boyfriend, Ramesh
“Sunny” Balwani were indicted on nine counts of wire fraud and
two counts of conspiracy to commit wire fraud in June. Mr.
Balwani was Theranos’s president and chief operating officer
until he retired from the company in May 2016. If convicted,
they each face a maximum sentence of 20 years in prison and a
fine of $250,000, plus restitution to those found to have been
defrauded, on each count.
indictments followed months of reporting by The Wall Street
Journal that raised questions about the company’s technology
Holmes sought to disrupt the blood-testing business. At the
height of her fame, the Stanford University dropout claimed to
have invented groundbreaking new technology that could run the
full range of laboratory tests on just a drop or two of blood
pricked from a finger.
the strength of her claims, Theranos rolled out its vaunted
finger-stick blood tests in Walgreens stores in California and
Arizona and rocketed to a valuation of more than $9 billion,
making Ms. Holmes a billionaire and media celebrity. Her bold
talk and black turtlenecks drew comparisons to Steve Jobs. The
pharmacy chain has said it was misled by Theranos about its
technology and prospects.
as the Journal revealed in a series of articles beginning in
October 2015, Theranos’s blood-testing device was unreliable
and the company used it for just a fraction of the more than
240 tests it offered to consumers. Behind the scenes, it
performed the vast majority of the tests with commercial
analyzers purchased from other companies.
become a symbol of the excesses of the current technology
boom. Its failure was dramatic and painful for many. A
biochemist who worked at Theranos for eight years committed
suicide in 2013 after becoming distraught by its culture of
fear and secrecy and its lack of progress with its technology,
according to his widow. Tyler Shultz, a grandson of former
Secretary of State George Shultz and the first employee to
blow the whistle to a state regulator about what he saw as
troubling practices, became estranged from his grandfather, a
roster of Theranos investors—most of whom poured money into
the company after its commercial rollout in Walgreens stores
in late 2013—included the Waltons, heirs to Walmart Inc.
Sam Walton; Atlanta’s Cox family; the family of Secretary of
Education Betsy DeVos; and Rupert Murdoch, executive chairman
of 21st Century Fox and of News
Journal’s parent company. Each invested $100 million or more
in Theranos—investments that are now worthless.