Now Theranos is Accused of Running Fake Tests and Setting Up Secret Company

Now Theranos is Accused of Running Fake Tests and Setting Up Secret Company April 24, 2017
By Alex Keown, BioSpace.com Breaking News Staff

PALO ALTO, Calif. – A lawsuit brought against beleaguered blood-testing company Theranos alleges the company committed fraud by faking its blood-testing demonstrations as part of a scheme to raise hundreds of millions of dollars from investors.

That’s the latest accusation leveled against Theranos, following allegations that the company threatened to file bankruptcy that would be structured in a way that investors would not regain losses if the funds chose to sue Theranos, rather than invest more into the company.

The latest charges against Theranos, backed up by testimony from former employees and directors, were unveiled in court documents that were unsealed last week. The lawsuit, filed by Partners Investments LP, said Theranos used a shell company to acquire commercially-available lab equipment that it used in its demonstrations, rather than the proprietary blood-testing equipment the company was developing. Theranos had long touted its proprietary blood-testing technology that was supposed to be able to run numerous diagnostic tests off of one drop of blood–a platform the company has since abandoned in favor of a portable laboratory it is developing.

The lawsuit says that founder and Chief Executive Officer Elizabeth Holmes, along with former company president Sunny Balwani, knowingly deceived investors by making claims that “the company had developed a proprietary technology that worked; the company’s proprietary technology was ready for commercial use to perform nearly all laboratory tests on a few drops of blood drawn from a patient’s finger; and the company was on the cusp of receiving all necessary regulatory clearances and approvals,” Vanity Fair reported.

As it has with all other lawsuits brought against it, Theranos has dismissed this particular case brought by Partner, a firm that invested about $96.1 million into Theranos. Theranos said the accusations against it represent a "one-sided filing by one party to litigation,” The Street reported this morning. Theranos has said it intends to fight the litigation in court. Theranos added that the allegations claimed by Partner “amount to a repackaging of allegations the media have already reported for nearly two years,” Business Insider added.

While Theranos said it intends to dispute the allegations in court, the company could run into a financing problem with litigation. Although at one time Theranos had an estimated worth of about $9 billion (which was raised on the promise of its blood-testing platform) the company’s worth has plummeted in the wake of the controversies surrounding Theranos. The Wall Street Journal recently reported that Theranos has about $150 million in available cash, but did not have much set aside to fight the numerous cases against it, including a $140 million lawsuit filed by Walgreen’s against Theranos.

Last week, the company agreed to pay more than $4.8 million to settle consumer fraud claims filed by the Arizona Attorney General’s office.

Also last week, Theranos announced it had settled with the Centers for Medicare and Medicaid Services, which means the company could be eligible to operate a clinical laboratory within the next two years. The settlement, which included a $30,000 payment, came after the CMMS handed down its ruling revoking the company’s CLIA certificate.

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