AN FRANCISCO-A grand jury on Friday indicted CEO Elizabeth Holmes and her former No. 2 Sunny Balwani for alleged fraud at Theranos, the disgraced Silicon Valley company that once promised to revolutionize blood testing in a pitch that was too good to be true.
Both Holmes and Balwani appeared in federal court in San Jose, Calif., on Friday, according to the indictment.
Earlier this month, a USA judge ruled investors who claimed that Theranos defrauded them into investing indirectly in the company by touting revolutionary blood-testing technology that never existed could not pursue their claims as a class action.
"This indictment alleges a corporate conspiracy to defraud financial investors", said FBI Special Agent in Charge John F. Bennett. But the company remained feisty as recently as three weeks ago, when it issued a rebuttal to a "60 Minutes" story timed to coincide with the release of Carreyrou's book, which depicted rampant unethical behavior by Holmes and Balwani.
Holmes had already settled federal fraud charges by the Securities and Exchange Commission, agreeing to a $500,000 penalty and a 10-year ban on working as an officer or director of a public company.
She was hailed as a "feminist icon" and the female version of Apple founder Steve Jobs, after she dropped out of Stanford to create her company, raising hundreds of millions of dollars even as she refused to divulge how her miracle test worked. However investigations into the company showed its testing results to be wrong or deeply inaccurate.More news: I defend North Korea's human rights record to help avoid nuclear attack
An attorney for Holmes did not immediately respond to a request for comment.
"CEO Elizabeth Holmes and COO Sunny Balwani not only defrauded investors, but also consumers who trusted and relied upon their allegedly-revolutionary blood-testing technology", Acting U.S. Attorney Alex Tse said in a statement. "This office, along with our other law enforcement partners in the Bay Area, will vigorously investigate and prosecute those who do not play by the rules that make Silicon Valley work".
Wire fraud charges stem from the fact that Holmes and Balwani purchased ads across state lines, meant to promote the purchase of Theranos blood tests at Walgreens stores in California and Arizona.
Holmes is also out as CEO, the company announced in a statement.
The indictment further alleges that Holmes and Balwani knew that many of their representations about the analyzer were false.