What Elizabeth Holmes and Theranos did wrong, according to the SEC

Elizabeth Holmes founder of Theranos
Elizabeth Holmes founder of Theranos
Image: AP Photo/Jeff Chiu
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The US Securities and Exchange Commission has charged Theranos and its founder and CEO, Elizabeth Holmes, with financial crimes.

The regulator says that the blood-testing company raised more than $700 million from investors by making false and exaggerated statements about its technology and performance.

Holmes and Theranos have not denied or admitted to the charges against them. Throughout the course of business, both engaged in a slew of deceitful actions, according to the government’s complaint. Many centered around two relationships Theranos developed with US chains, which are referred to as “Pharmacy A” and “Grocery A” in the document. (Theranos had previously entered into major partnerships with Walgreens Pharmacy and Safeway supermarkets.)

Here are some of the items raised in the complaint (pdf):

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Between 2013 and 2015, Holmes was paid between $200,000 and $390,000 per year, and exercised 53.7 million stock options. That’s seemingly $790,000 to $980,00 in compensation over that period.

To settle the charges, Holmes will pay a $500,000 penalty and will be barred from running a public company for 10 years. She’ll also have to return about 18.9 million shares, leaving her with around 800,000. (In a recent financing action, she returned around 34 million shares to Theranos rather than dilute other investors. Holmes has never sold any of her Theranos stock, according to the complaint.)

Another condition of the settlement requires her to convert all of her stock to the class with regular voting power. Holmes owns a class of stock that has 100 times the voting power as other shares.