Former Theranos President Sunny Balwani Intends to Fight Fraud Charges
With the criminal fraud charges leveled at Theranos founder Elizabeth Holmes and former company president Ramesh “Sunny” Balwani last Friday afternoon, David Taylor, the company’s General Counsel, has taken over as chief executive officer of the beleaguered company.
Despite the criminal charges and the previous “massive” fraud charges brought against Holmes by the U.S. Securities and Exchange Commission, she remains as chairman of the company board of directors, Theranos announced in a brief statement. In addition to serving as CEO, Taylor will also continue in his role as general counsel.
Balwani resigned from his position at Theranos in 2016 after seven years.
Holmes and Balwani have been charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud. On Friday the government released charges from a federal grand jury that stem from allegations Holmes and Balwani engaged in a multi-million dollar scheme to defraud investors, and a separate scheme to defraud doctors and patients, the Department of Justice said. According to the indictment, Holmes and Balwani used advertisements and solicitations to encourage and induce doctors and patients to use Theranos’ blood testing laboratory services, despite the fact that Holmes and Balwani knew the company’s proprietary device was “not capable of consistently producing accurate and reliable results for certain blood tests,” the government said. Additionally, the government said the tests performed on Theranos technology were “likely to contain inaccurate and unreliable results.”
Both Balwani and Holmes have entered not guilty pleas to the criminal charges leveled last week. Holmes has remained fairly mum on her defense, but Balwani has been more aggressive. His attorney, Jeffrey Coopersmith a partner with Davis Wright Tremaine, said Balwani is innocent and “looks forward to clearing his name at trial.” In a statement to BioSpace, Coopersmith said Balwani did not defraud customers or investors.
What’s more, Coopersmith said the charges against Balwani are something he’s never seen in 28 years as an attorney. In his statement, Coopersmith said Balwani obtained no financial benefit from his tenure as president of Theranos. Additionally, Coopersmith said Balwani lost millions of dollars of his own money during that time. In 2009, before Balwani joined Theranos, Coopersmith said he guaranteed an unsecured $12 million loan “without demanding common benefits typically provided by companies in these circumstances.” Additionally, when he did join the company as its president, he took an annual salary of $1 and then later acquired $4.5 million of Theranos stock with his own money. Coopersmith said that stock purchase provided funds to help build the business.
Coopersmith noted that Theranos was unable to successfully execute its business plan – despite creating a company that had a valuation of about $9 billion at one point. He added that Balwani did not defraud investors, who he said were “among the most sophisticated in the world.”
“All Mr. Balwani did was put his heart and soul, and millions of dollars of his own money, toward changing the face of healthcare by giving these people access to cost-effective blood tests so they could take charge of their own health and monitor changes for signs of the disease,” Coopersmith said. “Mr. Balwani believe so much in Theranos that over the years his own mother and other family members used the company’s lab to enable them to make informed decisions about important health care matter.”
In addition to fighting the criminal charges, Balwani is also fighting the charges brought by the SEC. Holmes agreed to pay a $500,000 fine for fraud to the SEC and has stepped down from her role as CEO.
The Theranos saga could be close to ending as the company nears falling below a $3 million threshold established by Fortress Investment Group, the financiers who provided the company with up to $100 million in December. If that happens, Fortress will gain control of the company and its assets, including intellectual property. That could happen within the next few weeks unless Theranos secures some new financing.