SEC v. Elizabeth Holmes; Ramesh "Sunny" Balwani; and Theranos, Inc., No. 5:18-cv-01602, Northern District of California (Mar. 14, 2018) — Complaint

COMPLAINT
SEC V .HOLMES, ET AL.

SECURITIES AND EXCHANGE COMMISSION
44 MONTGOMERY STREET, SUITE 2800
SAN FRANCISCO, CA 94104 ǁ (415) 705-2500

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JINA L. CHOI (NY Bar No. 2699718)
ERIN E. SCHNEIDER (Cal. Bar No. 216114)
  [email protected]
MONIQUE C. WINKLER (Cal. Bar No. 213031)
  [email protected]
JASON M. HABERMEYER (Cal. Bar No. 226607)
  [email protected]
MARC D. KATZ (Cal. Bar No. 189534)
  [email protected]
JESSICA W. CHAN (Cal. Bar No. 247669)
  [email protected]
RAHUL KOLHATKAR (Cal. Bar No. 261781)
  [email protected]

Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
44 Montgomery Street, Suite 2800
San Francisco, CA 94104
(415) 705-2500
SECURITIES AND EXCHANGE COMMISSION,

  Plaintiff,

 vs.

ELIZABETH HOLMES and THERANOS, INC.

  Defendants.

Case No.

COMPLAINT

Plaintiff Securities and Exchange Commission (the “Commission”) alleges:
SUMMARY OF THE ACTION
1. This case involves the fraudulent offer and sale of securities by Theranos, Inc.
(“Theranos”), a California company that aimed to revolutionize the diagnostics industry, its
Chairman and Chief Executive Officer Elizabeth Holmes, and its former President and Chief
Operating Officer, Ramesh “Sunny” Balwani.  The Commission has filed a separate action
against Balwani.
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION

COMPLAINT
SEC V. HOLMES, ET AL.

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2. Holmes, Balwani, and Theranos raised more than $700 million from late 2013 to
2015 while deceiving investors by making it appear as if Theranos had successfully developed a
commercially-ready portable blood analyzer that could perform a full range of laboratory tests
from a small sample of blood.  They deceived investors by, among other things, making false
and misleading statements to the media, hosting misleading technology demonstrations, and
overstating the extent of Theranos’ relationships with commercial partners and government
entities, to whom they had also made misrepresentations.
3. Holmes, Balwani, and Theranos also made false or misleading statements to
investors about many aspects of Theranos’ business, including the capabilities of its proprietary
analyzers, its commercial relationships, its relationship with the Department of Defense
(“DOD”), its regulatory status with the U.S. Food and Drug Administration (“FDA”), and its
financial condition.  These statements were made with the intent to deceive or with reckless
disregard for the truth.
4. Investors believed, based on these representations, that Theranos had successfully
developed a proprietary analyzer that was capable of conducting a comprehensive set of blood
tests from a few drops of blood from a finger.  From Holmes’ and Balwani’s representations,
investors understood Theranos offered a suite of technologies to (1) collect and transport a
fingerstick sample of blood, (2) place the sample on a special cartridge which could be inserted
into (3) Theranos’ proprietary analyzer, which would generate the results that Theranos could
transmit to the patient or care provider.  According to Holmes and Balwani, Theranos’
technology could provide blood testing that was faster, cheaper, and more accurate than existing
blood testing laboratories, all in one analyzer that could be used outside traditional laboratory
settings.
5. At all times, however, Holmes, Balwani, and Theranos were aware that, in its
clinical laboratory, Theranos’ proprietary analyzer performed only approximately 12 tests of the
over 200 tests on Theranos’ published patient testing menu, and Theranos used third-party

COMPLAINT
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commercially available analyzers, some of which Theranos had modified to analyze fingerstick
samples, to process the remainder of its patient tests.
6. In this action, the Commission seeks an order enjoining Holmes and Theranos
from future violations of the securities laws, requiring Holmes to pay a civil monetary penalty,
prohibiting Holmes from acting as an officer or director of any publicly-listed company,
requiring Holmes to return all of the shares she obtained during this  period, requiring Holmes to
relinquish super-majority voting shares she obtained during this period, and providing other
appropriate relief.
JURISDICTION AND VENUE
7. The Commission brings this action pursuant to Sections 20(b), 20(d), and 22(a)
of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. §§ 77t(b), 77t(d), and 77v(a)] and
Sections 21(d), 21(e), and 27 of the Securities Exchange Act of 1934 (“Exchange Act”)
[15 U.S.C. §§ 78u(d), 78u(e), and 78aa].
8. This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d)(1)
and 22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d)(1), and 77v(a)] and Sections 21(d),
21(e) and 27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e) and 78aa].
9. Defendants, directly or indirectly, made use of the means and instrumentalities of
interstate commerce or of the mails in connection with the acts, transactions, practices, and
courses of business alleged in this complaint.
10. Venue is proper in this District pursuant to Section 22(a) of the Securities Act
[15 U.S.C. § 77v(a)] and Section 27(a) of the Exchange Act [15 U.S.C. § 78aa(a)].  Theranos is
headquartered in Newark, California, and Holmes resides in the District.  In addition, acts,
transactions, practices, and courses of business that form the basis for the violations alleged in
this complaint occurred in this District.  Defendants met with and solicited prospective Theranos
investors in this District, and the relevant offers or sales of securities took place in this District.

COMPLAINT
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11. Under Civil Local Rule 3-2(d), this civil action should be assigned to the San
Jose Division, because a substantial part of the events or omissions which give rise to the claims
alleged herein occurred in Santa Clara County.
DEFENDANTS
12. Elizabeth Holmes, age 34, of Los Altos Hills, California, is the Chief Executive
Officer (“CEO”) and Chairman of the Board of Theranos, Inc.  Holmes was paid a salary of
approximately $200,000 to $390,000 per year between 2013 and 2015.  During the same period,
she also exercised approximately 53.7 million stock options and received super-majority voting,
Class B common shares, which granted her almost complete voting control over the company.
Holmes has never sold any of her Theranos stock.
13. Theranos, Inc. is  a Delaware corporation, established by Holmes in 2003, with
its principal place of business in Newark, California.  From 2013 through 2015 (the “relevant
time period”), Theranos’ principal place of business was in Palo Alto, California and its sole
managing executives were Holmes and Balwani.
RELEVANT INDIVIDUAL
14. Ramesh “Sunny” Balwani, age 52, of Atherton, California, was the President
and Chief Operating Officer of Theranos, Inc. from September 2009 to May 2016.
FACTUAL ALLEGATIONS
A. Background
15. Elizabeth Holmes founded Theranos, a diagnostics company, in 2003 after
leaving college during her second year.  Holmes had a vision of developing new diagnostic
technologies, with a focus on small sample testing and easier access to testing results for
prevention and earlier diagnosis.
16. For the first five years of its existence, Theranos focused its efforts on developing
its proprietary analyzer, the Theranos Sample Processing Unit, or “TSPU,” to analyze blood
taken from a fingerstick and on assisting pharmaceutical companies with their clinical trials.  The
earliest generation TSPU was a small    point-of-care device that was capable of performing only a

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few tests.  A point-of-care device can be used to obtain results near where patients provide
samples, such as medical offices.
17. In 2009, as Theranos was on the verge of running out of money, Holmes turned
to  Balwani to guarantee a line of credit for the company.  Balwani joined the company and
became its President and COO.
18. From the time that Balwani joined Theranos until his departure in 2016, Theranos
had no other senior managing executives besides Holmes and Balwani.  Holmes generally
focused on device innovation, board interaction, and strategic relationships, while Balwani
concentrated on developing software for Theranos’ technology and managing personnel and
operations.  Still, they collaborated closely with each other and made decisions about the
company together.
B. In 2010, Theranos Decided to Pursue the Retail Clinical Laboratory Space
Even Though Its Analyzer Was Not Commercially Ready
19. Theranos spent years in research and development to develop an earlier-
generation TSPU.  The earlier-generation TSPU was designed to perform only one method of
testing – immunochemistries – and could process only one sample at a time.  In 2009, Holmes
and Balwani turned the company’s efforts towards developing a new version of the TSPU, which
they hoped would one day be able to perform a broader range of laboratory testing by
incorporating additional methods of testing.  They later referred to this version of the TSPU as
the miniLab.
20. In early 2010, even though the miniLab was not commercially ready, Holmes and
Balwani decided to focus on the retail clinical laboratory market by pursuing contracts with a
large national pharmacy chain (“Pharmacy A”) and a large national grocery chain (“Grocery
A”).  Their vision was to place miniLabs at designated “Patient Service Centers” in retail stores
so that patients could get their diagnostic tests performed while shopping.
21. In connection with discussions about a potential partnership with Pharmacy A,
Holmes approved and provided presentations and other written materials to Pharmacy A

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executives representing that Theranos had the ability to conduct a broad range of tests on its
proprietary analyzer, including general chemistry tests, wellness tests, and some predictive and
diagnostic health tests (which involved methods beyond immunochemistries).  These materials
stated that Theranos would be ready to begin blood testing on its proprietary analyzer at
Pharmacy A stores by the fourth quarter of 2010.
22. Holmes also told Pharmacy A executives that Theranos could conduct hundreds
of blood tests through fingerstick (or the puncture of a finger), that its testing could be conducted
in a rapid timeframe (in less than one hour), and that it could be offered for a reasonable price
(much less than Theranos’ competitors).  Holmes also told Pharmacy A that its analyzer was
already deployed on military helicopters.
23. Based on these representations, Pharmacy A executives thought that the miniLab
was capable of performing, in a clinical lab setting, a wide range of the tests offered by
traditional laboratories.  For example, Holmes told Pharmacy A that Theranos could, on its
analyzer – the miniLab – perform approximately 90 percent of the tests that a large, traditional
central lab could perform.  In July 2010, Pharmacy A entered into a contract with Theranos to
roll out Theranos’ service to Pharmacy A stores.
24. Holmes also made similar statements to Grocery A.  She told Grocery A’s    then-
CEO that Theranos had successfully miniaturized the conventional laboratory.  Holmes also told
him that Theranos’ analyzers were being deployed in the battlefield.  Based on these
representations, in September 2010, Grocery A contracted with Theranos to offer Theranos
patient testing in  Grocery A stores.
C. In 2013, On the Eve of the Pharmacy A Launch, Theranos Began Modifying
Commercially-Available Analyzers and Running Misleading
Demonstrations
25. Between 2010 and 2013, Theranos continued to work on developing its miniLab
with an eye towards launching its services in Pharmacy A and Grocery A stores.
26. In 2011, Pharmacy A executives raised concerns it had with Theranos’ regulatory
strategy, and told Holmes and Balwani that Theranos might need to obtain FDA approval for its

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miniLab and certify each of its stores as a laboratory in order for the analyzers to be used in
Pharmacy A stores.
27. Based on these concerns, in 2012, Theranos and Pharmacy A agreed to modify
their original contract to reflect a roll-out of Theranos’ service in two phases.  In the first phase,
before Theranos received regulatory approvals for its analyzers, patient samples would be
transported from Pharmacy A stores to centralized laboratories operated by Theranos and tested
on Theranos’ miniLab there.  Theranos opened and operated two centralized laboratories to test
patient samples collected from Pharmacy A stores.  In the second phase, after Theranos had
received the necessary regulatory approvals, Theranos’ retail offering at Pharmacy A would be
performed on miniLabs placed in Pharmacy A stores.
28. But as September 2013 approached – the date for the launch of the first phase of
the roll out of Theranos services in Pharmacy A stores – it became clear to Holmes that the
miniLab would not be ready.  At the time, Theranos had not fully integrated other testing
methods into the miniLab and had not completed the scientific verification steps needed to make
any of its blood tests available on the miniLab for patient testing.  As a result, Holmes and
Balwani made the decision to use Theranos’ earlier-generation TSPUs, which could only be used
to perform immunochemistries, for patient testing.
29. In order to offer a broader range of fingerstick tests at Pharmacy A, Holmes and
Balwani asked Theranos’ engineers in July 2013 to modify third-party analyzers from
commercial manufacturers so they could analyze fingerstick samples.  Theranos scientists spent
the two months leading up to the retail launch preparing as many fingerstick tests as possible on
the third-party analyzers, which could typically process only venous samples.
30. Holmes and Theranos never told Pharmacy A and Grocery A about Theranos’
technological challenges.  For instance, in July and August 2013, Theranos coordinated
technology demonstrations for various Pharmacy A executives in advance of the retail launch.
Holmes instructed Theranos employees to place both earlier generation TSPUs and miniLabs in
a demonstration room where Theranos collected fingerstick samples from Pharmacy A

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executives.  Instead of using these machines to process the tests on these samples, and
unbeknownst to the Pharmacy A executives, Theranos used the modified third-party machines to
process a portion of the tests.
31. Holmes also instructed Theranos employees to place numerous miniLabs – which
could only be used for research and development purposes and could not be used for clinical
testing – in a room in Theranos’ clinical lab.  This made it appear as if Theranos used its miniLab
for clinical purposes.  Holmes then led a group of Pharmacy A executives on a tour of that room,
and those Pharmacy A executives saw rows of miniLabs in  Theranos’ clinical lab.
32. Based on Holmes’ presentation, Pharmacy A executives understood that the
blood from their demonstration samples would be tested on Theranos’ miniLabs.  Holmes never
told the executives that Theranos was actually testing some of their blood on modified third-
party analyzers.
33. At the end of 2013, Pharmacy A agreed to accelerate a portion of a $100 million
“innovation fee” to help Theranos broaden its roll-out of services to Pharmacy A stores.
Unbeknownst to Pharmacy A, Theranos was scaling its retail offering by relying on third-party
analyzers.
34. Neither Holmes nor Theranos ever told anyone at Pharmacy A that Theranos
used third-party analyzers, including those that had been modified to test fingerstick blood.
Holmes and Theranos also never told Pharmacy A that Theranos was using third-party analyzers
to perform the majority of its testing.  If Pharmacy A had known that Theranos was using third-
party analyzers for a majority of its patient testing, it would not have accelerated the payment of
the innovation fee.
35. Holmes and Balwani also denied there were problems with Theranos’ technology
in discussions with Grocery A.  For example, in response to a question about a rumor that
Theranos was facing technological challenges with its proprietary analyzers, Holmes and
Balwani assured Grocery A’s    General Counsel that there was no technological problem with the

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analyzers and that the TSPU was capable of performing 90 percent of the blood tests typically
requested by doctors for their patients.
36. From its retail launch in September 2013 to the time it closed its clinical
laboratories in 2016, Theranos never used its miniLab for patient testing in its clinical laboratory.
Theranos conducted – at its height –12 tests using the earlier-generation TSPU, and processed
about 50 to 60 tests using the modified third-party analyzers.  Theranos processed the remaining
100-plus tests it offered at Pharmacy A using the same types of industry standard technology as
other traditional laboratories, or sent tests out to third-party laboratories.
D. Starting in September 2013, Holmes and Theranos Began Publicly Touting
Theranos’ Proprietary Analyzers in Interviews with the Media,
Notwithstanding Theranos’ Use of Commercially-Available Analyzers for
Patient Testing
37. From 2013 to 2014, Theranos and Holmes emerged into the spotlight by issuing a
press release touting the launch of its retail offering with Pharmacy A and granting a number of
media interviews for articles that Holmes later used to solicit investors.  In September 2013,
Theranos announced a partnership with Pharmacy A to offer a “new lab testing service through
Pharmacy A pharmacies nationwide.”  By going to a Pharmacy A store in Palo Alto, California,
the first location to offer Theranos testing, consumers could “complete any clinician-directed lab
tests with as little as a few drops of blood and results available in a matter of hours.”
38. Around the same time, Holmes sat down with a reporter for the Wall Street
Journal purportedly to discuss the state of Theranos’ business.  A Wall Street Journal article
accompanying the Pharmacy A launch announcement stated:
The secret that hundreds of employees are now refining involves devices that
automate and miniaturize more than 1,000 laboratory tests, from routine blood work
to advanced genetic analyses.  Theranos’ processes are faster, cheaper, and more
accurate than the conventional methods and require only microscopic blood
volumes, not vial after vial of the stuff.
39. Additional articles written after interviews with Holmes continued to raise
Theranos’ public profile and tout its technological capabilities.  An April 2014 Wired article

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stated that “[i]nstead of vials of blood – one for every test needed – Theranos requires only a
pinprick and a drop of blood.  With that they can perform hundreds of tests, from standard
cholesterol checks to sophisticated genetic analyses.”
40. Similarly, a June 2014 Fortune article noted that “[Theranos] currently offers
more than 200 – and is ramping up to offer more than 1,000 – of the most commonly ordered
blood diagnostic tests, all without the need for a syringe.”  Fortune also distinguished Theranos
from other blood testing companies because “Theranos [] does not buy any analyzers from third
parties.”  In contrast to the large traditional blood analyzers that occupied whole rooms,
Theranos’ proprietary analyzers “look[ed] like large desktop computer towers.”
41. By the end of 2014, Forbes declared that Holmes was “the youngest self-made
woman billionaire” whose company could, “[w]ith a painless prick, . . . quickly test a drop of
blood at a fraction of the price of commercial labs which need more than one vial.”
42. Holmes sat for interviews and communicated with journalists about Theranos and
its technology.  In email conversations with the Fortune reporter, Holmes stated that “it is ok to
say the analytical systems are about the size of a desktop computer.”  Holmes also suggested
describing Theranos’ miniLab as “much smaller than in conventional laboratories or have a
smaller space requirement than conventional laboratories.”  The Fortune reporter used a version
of this statement in his article on Theranos.  As Holmes knew, or was reckless in not knowing,
this was misleading because the device she was describing – the miniLab – was not in use in
Theranos’ clinical laboratory.
43. Holmes did not correct the false or misleading statements in the articles that were
published between 2013 and 2015.  In fact, in some instances, she and Theranos provided some
of the articles containing untrue or misleading statements to potential investors.
E. Beginning in 2013, Holmes and Theranos Raised Over $700 Million from
Investors and Holmes Obtained Super-Voting Control of Theranos While
Misleading Investors
44. In late 2013, Theranos had approximately $30 million in cash and short-term
securities, which would fund the company’s operations for only a few months.  As Holmes

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knew, Theranos needed cash to continue spending money on research and development to
advance the miniLab, which at that time was not ready for commercial use.
45. Holmes anticipated that Theranos would need to raise much more money than it
had in its earlier financing rounds and that such fundraising likely would dilute her ownership of
the company.  In order to retain her control of the company, Holmes in early 2014 convinced
Theranos’ board and shareholders to pass a resolution creating a new, separate class of shares
(“Class B Shares”).
46. This resolution (1) split Theranos’ stock in a 1 to 5 ratio to allow for future
fundraising, and (2) created Class B Shares, which had super-voting (100x) power and would be
given only to Holmes.  Shareholders were given only a few days to consider and vote on this
resolution.  Following the resolution’s passage, Holmes owned just over half of the company’s
outstanding shares, but over 99 percent of its voting power.  Holmes obtained the Class B Shares
during the relevant time period.
47. From late 2013 to 2015, Holmes, Balwani, and Theranos raised over $700
million from investors in two financing rounds.  These investors believed – based on false and
misleading statements by Holmes – that Theranos had successfully developed a proprietary
analyzer that could conduct the full range of laboratory testing from a small sample of blood.
1. The Investor Solicitation Process Generally Included a Face-to-Face
Meeting, a Technology Demonstration, and a Binder of Materials
48. After an introduction to Holmes, potential investors would typically meet face-to-
face with Holmes, and at times, Balwani.  During this meeting, which normally took place at
Theranos’ headquarters, Holmes described her vision for the company, including her motivation
to develop a technology that could perform blood testing on small samples – spurred by her own
fear of needles – and her larger desire to provide cheaper, faster, and more accurate laboratory
testing so that diagnoses of serious conditions and diseases could take place sooner.
49. This initial meeting was often followed by a purported demonstration of
Theranos’ proprietary analyzers, the TSPU, and the miniLab.  In several instances, potential

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investors would be taken by Holmes and Balwani to a different room to view Theranos’ desktop
computer-like analyzers.  A phlebotomist would arrive to draw their blood through fingerstick,
using a nanotainer, a Theranos-developed collection device.  Then the sample was either inserted
into the TSPU or taken away for processing.  Based on what they saw, potential investors
believed that Theranos had tested their blood on either an earlier-generation TSPU or the
miniLab.  As Holmes knew, or was reckless in not knowing, however, Theranos often actually
tested their blood on third-party analyzers, because Theranos could not conduct all of the tests it
offered prospective investors on its proprietary analyzers.
50. Theranos also sent investors a binder of background materials, which Holmes
instructed employees to compile.  In addition to incorporation documents and shareholder
agreements, the typical investor binder included (1) a cover letter drafted and signed by Holmes;
(2) a company overview slide deck presentation; (3) reports of clinical trials work Theranos
performed with its pharmaceutical companies; (4) financial projections; and (5) articles and
profiles about Theranos, including the 2013 and 2014 articles from The Wall Street Journal,
Wired, and Fortune that were written after Holmes provided them with interviews.  These
materials were important to investors in considering whether to invest in Theranos.
51. One section of the investor binders touted Theranos’ work with pharmaceutical
companies and contained a number of reports purportedly related to the clinical trials work
Theranos had performed with those pharmaceutical companies.  The reports prominently
featured the company logos of well-known pharmaceutical companies, suggesting that the
reports were drafted by these pharmaceutical companies.  However, as Holmes knew, only one
report in the investor binder was co-written by a pharmaceutical client.  The other two reports
were drafted by Theranos employees, despite displaying the logos of pharmaceutical companies.
Investors believed that pharmaceutical companies had written their own endorsements of
Theranos’ technology, when the pharmaceutical companies had not.

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2. Holmes and Theranos Made a Series of False or Misleading
Statements to Investors That Confirmed the Company’s Public
Narrative
52. Holmes made statements to investors about the status of Theranos’ technology,
historical contracts, commercial relationships, regulatory strategy, and financial performance that
were consistent with the public image she and Theranos were promoting of Theranos as a
company that was revolutionizing the diagnostics industry.
a. Holmes and Theranos Represented That Theranos’
Proprietary Analyzer Was Capable of Conducting the Full
Range of Testing When It Could Not
53. Holmes represented to investors that Theranos’ miniLab was capable of
processing a full range of laboratory tests.  For instance, Holmes and Balwani told one investor
that Theranos’ proprietary analyzer could process over 1,000 Current Procedural Terminology
(“CPT”) codes and that Theranos had developed a technological solution for an additional 300
CPT codes.  She made similar representations to other investors, claiming that Theranos could
run all of its blood tests on one analyzer using chemicals from one consumable cartridge.
54. Theranos’ company overview presentation that Theranos included in investor
binders also echoed these same statements.  The presentation noted, among other things, that
“Theranos’ proprietary, patented technology runs comprehensive blood tests from a finger-stick
and tests from micro-samples of other matrices, and generates significantly higher integrity data
than currently possible.”
55. But Theranos’ analyzers never performed comprehensive testing or processed
1,000 CPT codes in its clinical lab.  In fact, as Holmes knew, or was reckless in not knowing,
Theranos’ clinical lab used the TSPU only to perform 12 of the tests offered to patients.
56. In addition to not disclosing the use of third-party analyzers to conduct the
demonstrations, Holmes’ and Theranos’ actions made it appear as if Theranos’ proprietary
analyzer had more extensive capabilities than it actually did.  When potential investors tried out
Theranos’ services by bringing a physician’s laboratory requisition to a Pharmacy A store,

COMPLAINT
SEC V. HOLMES, ET AL.

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Holmes instructed Theranos employees to remove certain tests from the order if Theranos was
unable to perform those tests using a fingerstick collection.
57. This conduct led investors to believe that Theranos’ proprietary analyzers were
broadly in use by Theranos and that they produced results on a broader range of tests than they
actually did.   Investors would not have invested had they known Theranos’ promises about its
ability to run a broad range of tests were untrue and that the TSPU was being used to run only a
limited number of tests in its lab.  When presenting to investors, Holmes knew, or was reckless
in not knowing, that the miniLab was not presently capable of processing a full range of
laboratory tests.
58. Holmes’ statements about the capabilities of Theranos’ proprietary analyzer were
important to many potential investors because the technology was a basis of their investments.
b. Holmes and Theranos Stated That Theranos Manufactured
All of Its Own Analyzers When It Actually Used Third-Party
Analyzers to Run the Majority of Its    Tests
59. Holmes also represented to investors that Theranos manufactured all of its own
analyzers, when Theranos had in fact only manufactured its own TSPUs.  For instance, Holmes
told one investor that Theranos used its own analyzer equipment and did not buy analyzer
equipment from third parties.  She and Balwani explained to another investor that 100 percent of
Theranos’ analyzers were manufactured in Theranos’ facility in Newark, California.
60. The company overview presentation in some investor binders also showed
pictures of the TSPU and miniLab under the heading “Theranos Systems,” but excluded pictures
of the third-party analyzers Theranos was using.
61. Finally, the Fortune article – for which Holmes was extensively interviewed and
which she included in  materials sent to investors – stated that “Theranos [] does not buy any
analyzers from third parties.”
62. These statements gave potential investors the impression that Theranos was only
using its own TSPUs and miniLabs for patient testing.

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63. As Holmes knew, or was reckless in not knowing, statements that Theranos
manufactured all of its analyzers were false or misleading in light of Theranos’ broad use of
third-party analyzers.  Theranos conducted the majority of its testing using third-party analyzers.
64. Theranos’ capability to run the full range of laboratory testing on its proprietary
analyzer was a key competitive advantage potential investors considered when deciding whether
to invest in the company.
c. Holmes and Theranos Made False or Misleading Statements
About Theranos’ Historical Contracts with the DOD
65. Holmes also made false or misleading statements concerning Theranos’ historical
business contracts with the DOD.  In Holmes’ cover letter, which she included in investor
binders, she highlighted the company’s “historical” work with “military clients.”  The third page
of the company overview presentation introduces the company with the following statement,
“[c]urrent and past clients include . . . U.S. and foreign government health and military
organizations.”
66. Holmes also made other statements that gave potential investors the impression
that these historical relationships were meaningful.  Holmes told multiple investors that
Theranos’ technology had been deployed by the DOD in the battlefield and in Afghanistan.
Holmes told investors that the DOD had deployed Theranos’ miniLab on medevac helicopters.
67. Holmes also included a comment in her cover letter that “Theranos has grown
from cash from its contracts for some time,” which misled investors into believing that these
contracts funded Theranos’ operations.  She made the same comment verbally to other potential
investors.  Although Theranos had discussions with different military and government entities,
the company earned limited revenues from those efforts, and Theranos primarily grew from
investor capital raises.
68. Holmes knew, or was reckless in not knowing, that these statements were false
and misleading.  While Theranos’ technology was used in a DOD burn study, it was never
deployed by the DOD in the battlefield, in Afghanistan, or on medevac helicopters.  From 2011

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to 2014, Holmes had discussions with multiple divisions of the DOD.  However, Theranos
generated only approximately $300,000 from three DOD contracts.
69. Holmes’ statements about Theranos’ history with the DOD were important to
potential investors because these relationships lent legitimacy to Theranos’ business and its
proprietary analyzer.
d. Holmes and Theranos Told Investors That Theranos’
Relationships with Pharmacy A and Grocery A Were
Thriving When They Were Stalled
70. During meetings and in investor binders, Holmes described Theranos’ thriving
relationships with Pharmacy A and Grocery A.  Much of the company overview presentation
was dedicated to Theranos’ relationship with Pharmacy A, showing pictures of the patient
service centers where patients would get their fingers pricked, and a map of the number of
Pharmacy A stores across the country that would soon be offering Theranos’ blood testing.
71. Holmes also noted, in her cover letter, that since the launch of Theranos’ roll-out
in  Pharmacy A stores, the company had also begun “operating in the consumer, physician, and
hospital laboratory testing business,” highlighting the importance of the Pharmacy A relationship
in paving the way for these other lines of business.
72. Most importantly, Holmes represented to numerous investors in late 2014 that
Theranos was expected to roll out its retail services to hundreds of Pharmacy A stores in 2015.
This information was also included in financial projections that Theranos sent to investors that
were based on the assumption that Theranos would be rolling out to 800 or 900 stores by year-
end 2015.
73. However, by late 2014, while Theranos was raising the bulk of the over $700
million it raised during the relevant time period, Holmes was aware that Theranos’ retail roll out
with Pharmacy A was stalled due to, among other issues, some concerns Pharmacy A executives
had with regard to Theranos’ performance.
74. Holmes knew that patient traffic and the percentage of collections being
performed by fingerstick were important metrics for Pharmacy A and also knew that Pharmacy

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A had concerns regarding the lower than expected number of fingerstick collections being
performed in its stores.
75. In December 2014, Holmes met with Pharmacy A executives to discuss
potentially modifying the parties’ relationship to a landlord and tenant model, whereby Theranos
would rent space in Pharmacy A stores.  Holmes did not share any of these developments with
investors.  Holmes knew, or was reckless in not knowing, that Theranos would not be expanding
into Pharmacy A as quickly as she represented it would.
76. Holmes also told investors in late 2014 that Theranos services would be rolled
out in more than 100 Grocery A stores in January 2015.  But the relationship with Grocery A had
already begun to stall in 2013, during which the parties had started discussing the possibility of
modifying the contract so that Theranos would rent space in individual supermarkets.  The
parties were still engaged in these discussions in 2014.
77. By June 2014, Holmes told a Theranos board member that she was contemplating
terminating Theranos’ relationship with Grocery A.  By August 2014, the parties ceased to be in
communication with one another.  Nevertheless, when meeting with investors in the fall of 2014,
Holmes continued to  discuss Theranos’ relationship with Grocery A to investors.  Holmes knew,
or was reckless in not knowing, that her statements about Theranos’ relationship with Grocery A
were false or misleading.
78. The statements made by Holmes about the status of the Pharmacy A and Grocery
A relationships were important to investors because these contracts gave potential investors
confidence that Theranos’ technologies were commercially ready.  Pharmacy A and Grocery A
were also the major drivers of future revenues for the company.  In reality, Holmes and Theranos
were attempting to renegotiate Theranos’ agreements with these retail businesses in light of the
delays in rolling out.

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SEC V. HOLMES, ET AL.

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e. Holmes Claimed That Theranos Was Not Required to Seek
FDA Approval Despite Repeatedly Being Told That Approval
Was Necessary for Its Analyzers and Tests
79. When speaking to potential investors in late 2013 through 2015, Holmes
consistently stated that Theranos did not need to obtain approval from the FDA for its miniLab
and tests, and instead said that Theranos was applying for FDA approval voluntarily because it
was the “gold standard.”  For instance, Holmes told multiple investors that approval was not
required for the miniLab because Theranos was not selling its devices to other companies.
80. Holmes represented to business partners and investors that FDA approval was not
necessary because she believed that Theranos’ tests were laboratory developed tests (“LDTs”),
or tests developed and used inside a clinical laboratory, over which the FDA had historically
exercised its enforcement discretion to not require FDA clearance.  However, she and Balwani
were told by multiple parties, including Pharmacy A, that the FDA might reject this regulatory
strategy because Theranos’ miniLab had not previously obtained approval from the FDA.
Holmes and FDA representatives discussed Theranos’ regulatory strategy in late 2013 through
2014 while Theranos continued to offer LDTs to retail patients.
81. By the time of Theranos’ financing round in 2014, FDA representatives told
Holmes that clearance or approval would be necessary for Theranos’ analyzer and tests.  In late
2013 and throughout 2014, FDA representatives met with Holmes and sent letters to Theranos
stating that they did not believe Theranos was offering LDTs, and that even if Theranos was not
selling its miniLab or tests, FDA clearance or approval was necessary.  Based on these
communications, Holmes agreed to submit all components of Theranos’ testing technology to
the FDA for clearance or approval.  However, Holmes continued to raise additional funds while
telling investors Theranos was seeking FDA approval voluntarily.  But Holmes knew, or was
reckless in not knowing, that FDA approval was necessary for Theranos’ analyzer and tests.
82. Holmes’ statements that Theranos did not need FDA approval or clearance were
important to investors because approval or clearance would have been an obstacle in the
company’s path to realizing full commercialization.

COMPLAINT
SEC V. HOLMES, ET AL.

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f. Holmes Told Investors That Theranos Had Generated or
Would Generate Over $100 Million in Revenues in 2014 and
That It Was On Track to Make $1 Billion in Revenues in
2015, But This Information Had No Basis
83. Theranos included financial information in the investor binders that projected that
Theranos would generate over $100 million in revenues and break even in 2014.  These
documents, which were drafted by Balwani, and which Holmes reviewed and shared with
potential investors, also represented that Theranos expected to generate approximately $1 billion
in revenues in 2015.
84. The projections further indicated that Theranos would obtain revenue from
several lines of business, including retail pharmacies (Pharmacy A and Grocery A), samples
collected from physicians’ offices, samples collected from hospitals, and pharmaceutical
services.
85. Holmes also provided historical financial information to one potential investor.
In August 2015, Holmes met with a potential investor, during which she provided Theranos’
financial results for fiscal year 2014.  These financials showed 2014 net revenues of $108
million, and 2015 and 2016 net revenue projections of $240 million and $750 million,
respectively.
86. But Theranos’ actual financial performance bore no resemblance to the financial
information Holmes shared with investors.  Theranos recorded little more than $100,000 in
revenue in 2014 and was nowhere near generating $100 million in revenue by the end of 2014.
87. Holmes knew, or was reckless in not knowing, that Theranos sent different
financial information containing Theranos’ actual revenue numbers (a little over $100,000) to a
third-party valuation firm that it   had retained to value the company’s common stock.  Some of
Theranos’ projections, provided to potential investors in October 2014, stated Theranos would
earn $40 million from pharmaceutical services, $46 million from lab services provided to
hospitals, and $9 million from lab services provided to physicians’ offices, all by the end of
2014.  In reality, Theranos had no revenues from any of those lines of business.

COMPLAINT
SEC V. HOLMES, ET AL.

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88. Holmes also knew, or was reckless in not knowing, that the 2015 $1 billion
revenue projections were unreasonable.  By late 2014, Holmes knew Theranos’ roll outs in
Pharmacy A and Grocery A stores were not going as planned.  Theranos and Holmes also knew
the company had made limited progress in advancing the other lines of business reflected in the
projections.  Holmes knew that Theranos had no active discussions with pharmaceutical
companies, had partnered with only a handful of hospitals, and had no knowledge of any
contracts between Theranos and physicians’ offices.
89. These financial projections were important to investors because they gave the
impression that Theranos had already secured contracts to deliver these revenues and that the
company’s business was growing rapidly.
F. Theranos Exited the Commercial Laboratory Business in 2016, and By the
End of 2017, Was On the Verge of Bankruptcy
90. In 2016, after regulatory inspections of Theranos’ clinical laboratories and
manufacturing facility, Theranos and Holmes exited the retail laboratory business and shifted the
company’s focus away from retail clinical testing and back to developing the miniLab.
Additionally, Grocery A and Pharmacy A terminated their relationships with Theranos.
91. In 2017, Theranos and Holmes settled a lawsuit with an investor that alleged it
was defrauded by Theranos.  Theranos also settled a lawsuit with Pharmacy A, which brought an
action for breach of contract against the company.
92. In 2017, Theranos conducted a tender offer to recapitalize certain investors from
its later fundraising rounds.  As part of that recapitalization, Holmes returned approximately 34
million of her shares to Theranos to prevent other investors from being diluted as a result of the
tender offer.  As part of the tender offer, Theranos agreed not to take certain corporate actions –
including the decisions to    issue new equity or amend the company’s bylaws – without a vote of
the majority of shareholders who invested during the relevant time period.
93. Due to the company’s liquidation preference, if Theranos is acquired or is
otherwise liquidated, Holmes would not profit from her ownership until – assuming redemption

COMPLAINT
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of certain warrants – over $750 million is returned to defrauded investors and other preferred
shareholders.
94. In late 2017, on the verge of bankruptcy, Theranos obtained a term loan, secured
on the value of Theranos’ patent portfolio, that it anticipated would allow the company to
continue work on the miniLab for approximately one year.
FIRST CLAIM FOR RELIEF
Violations of Section 10(b) of the Exchange Act and Rule 10b-5
By Both Defendants
95. The Commission re-alleges and incorporates by reference Paragraph Nos. 1
through 94.
96. By engaging in the conduct described above, Defendants Holmes and Theranos,
directly or indirectly, in connection with the purchase or sale of securities, by the use of means or
instrumentalities of interstate commerce, or the mails, with scienter:
(a) Employed devices, schemes, or artifices to defraud;
(b) Made untrue statements of material facts or omitted to state material facts
necessary in order to make the statements made, in the light of the circumstances
under which they were made, not misleading; and
(c) Engaged in acts, practices, or courses of business which operated or would
operate as a fraud or deceit upon other persons, including purchasers and sellers
of securities.
97. By reason of the foregoing, Defendants violated, and unless restrained and
enjoined will continue to violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and
Rule 10b-5 thereunder [17 C.F.R. §§ 240.10b-5].

COMPLAINT
SEC V. HOLMES, ET AL.

SECURITIES AND EXCHANGE COMMISSION
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SAN FRANCISCO, CA 94104 ǁ (415) 705-2500

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SECOND CLAIM FOR RELIEF
Violations of Sections 17(a)(1), (2), and (3) of the Securities Act
By Both Defendants
98. The Commission re-alleges and incorporates by reference Paragraph Nos. 1
through 94.
99. By engaging in the conduct described above, Defendants Holmes and Theranos,
directly or indirectly, in the offer or sale of securities, by use of the means or instruments of
transportation or communication in interstate commerce or by use of the mails,
(1) with scienter, employed devices, schemes, or artifices to defraud;
(2) obtained money or property by means of untrue statements of material fact or by
omitting to state a material fact necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading; and
(3) engaged in transactions, practices, or courses of business which operated or
would operate as a fraud or deceit upon purchasers.
100. By reason of the foregoing, Defendants violated, and unless restrained and
enjoined will continue to violate, Section 17(a) of the Securities Act [15 U.S.C. §§ 77q(a)].
PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that this Court:
I.
Permanently enjoin Defendants Holmes and Theranos from directly or indirectly
violating Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], and Section 10(b) of the
Exchange Act [15 U.S.C. § 78j(b)], and Rule 10b-5 [17 C.F.R. § 240.10b-5] thereunder.
II.
Issue an order requiring Defendant Holmes to pay a civil monetary penalty pursuant to
Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d) of the Exchange Act
[15 U.S.C. § 78u(d)(3)].

COMPLAINT
SEC V. HOLMES, ET AL.

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III.
Issue an order requiring Defendant Holmes to return 18,897,137 Class B common stock
shares in Theranos to    Theranos within 14 days of entry of judgment pursuant to the Court’s
equitable powers.
IV.
Issue an order requiring Defendant Holmes to provide written notice to Theranos that she
elects to convert all shares of Class B common stock shares in Theranos to Class A common
stock shares, and take all necessary administrative actions to effectuate the conversion of these
Class B common stock shares to Class A common stock shares within 28 days of entry of
judgment pursuant to the Court’s equitable powers.
V.
Prohibit Defendant Holmes from serving as an officer or director of any entity having a
class of securities registered with the Commission pursuant to Section 12 of the Exchange Act
[15 U.S.C. § 78l] or that is required to file reports pursuant to Section 15(d) of the Exchange Act
[15 U.S.C. § 78o(d)], pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)] and
Section 21(d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)].
VI.
Retain jurisdiction of this action in accordance with the principles of equity and the
Federal Rules of Civil Procedure in order to implement and carry out the terms of all orders and
decrees that may be entered, or to entertain any suitable application or motion for additional
relief within the jurisdiction of this Court.

COMPLAINT
SEC V. HOLMES, ET AL.

SECURITIES AND EXCHANGE COMMISSION
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VII.
Grant such other and further relief as this Court may determine to be just and necessary.

Dated:  March 14, 2018  Respectfully submitted,

  /s/ Jessica W. Chan
JESSICA W. CHAN
Attorney for Plaintiff
SECURITIES AND EXCHANGE COMMISSION

COMPLAINT  
SEC V .HOLMES, ET AL. -1- 

SECURITIES AND EXCHANGE COMMISSION 
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JINA L. CHOI (NY Bar No. 2699718) 
ERIN E. SCHNEIDER (Cal. Bar No. 216114) 
  [email protected] 
MONIQUE C. WINKLER (Cal. Bar No. 213031) 
  [email protected] 
JASON M. HABERMEYER (Cal. Bar No. 226607) 
  [email protected] 
MARC D. KATZ (Cal. Bar No. 189534) 
  [email protected] 
JESSICA W. CHAN (Cal. Bar No. 247669) 
  [email protected] 
RAHUL KOLHATKAR (Cal. Bar No. 261781) 
  [email protected] 
 
Attorneys for Plaintiff 
SECURITIES AND EXCHANGE COMMISSION 
44 Montgomery Street, Suite 2800 
San Francisco, CA 94104 
(415) 705-2500 

SECURITIES AND EXCHANGE COMMISSION, 
 
  Plaintiff, 
 
 vs. 
 
ELIZABETH HOLMES and THERANOS, INC. 
 

  Defendants. 
 

Case No. 
 
 
COMPLAINT  

 
 

Plaintiff Securities and Exchange Commission (the “Commission”) alleges: 

SUMMARY OF THE ACTION 

1. This case involves the fraudulent offer and sale of securities by Theranos, Inc. 

(“Theranos”), a California company that aimed to revolutionize the diagnostics industry, its 

Chairman and Chief Executive Officer Elizabeth Holmes, and its former President and Chief 

Operating Officer, Ramesh “Sunny” Balwani.  The Commission has filed a separate action 

against Balwani. 

UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF CALIFORNIA 

SAN JOSE DIVISION 

 

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2. Holmes, Balwani, and Theranos raised more than $700 million from late 2013 to 

2015 while deceiving investors by making it appear as if Theranos had successfully developed a 

commercially-ready portable blood analyzer that could perform a full range of laboratory tests 

from a small sample of blood.  They deceived investors by, among other things, making false 

and misleading statements to the media, hosting misleading technology demonstrations, and 

overstating the extent of Theranos’ relationships with commercial partners and government 

entities, to whom they had also made misrepresentations.   

3. Holmes, Balwani, and Theranos also made false or misleading statements to 

investors about many aspects of Theranos’ business, including the capabilities of its proprietary 

analyzers, its commercial relationships, its relationship with the Department of Defense 

(“DOD”), its regulatory status with the U.S. Food and Drug Administration (“FDA”), and its 

financial condition.  These statements were made with the intent to deceive or with reckless 

disregard for the truth. 

4. Investors believed, based on these representations, that Theranos had successfully 

developed a proprietary analyzer that was capable of conducting a comprehensive set of blood 

tests from a few drops of blood from a finger.  From Holmes’ and Balwani’s representations, 

investors understood Theranos offered a suite of technologies to (1) collect and transport a 

fingerstick sample of blood, (2) place the sample on a special cartridge which could be inserted 

into (3) Theranos’ proprietary analyzer, which would generate the results that Theranos could 

transmit to the patient or care provider.  According to Holmes and Balwani, Theranos’ 

technology could provide blood testing that was faster, cheaper, and more accurate than existing 

blood testing laboratories, all in one analyzer that could be used outside traditional laboratory 

settings. 

5. At all times, however, Holmes, Balwani, and Theranos were aware that, in its 

clinical laboratory, Theranos’ proprietary analyzer performed only approximately 12 tests of the 

over 200 tests on Theranos’ published patient testing menu, and Theranos used third-party 

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commercially available analyzers, some of which Theranos had modified to analyze fingerstick 

samples, to process the remainder of its patient tests. 

6. In this action, the Commission seeks an order enjoining Holmes and Theranos 

from future violations of the securities laws, requiring Holmes to pay a civil monetary penalty, 

prohibiting Holmes from acting as an officer or director of any publicly-listed company, 

requiring Holmes to return all of the shares she obtained during this period, requiring Holmes to 

relinquish super-majority voting shares she obtained during this period, and providing other 

appropriate relief. 

JURISDICTION AND VENUE 

7. The Commission brings this action pursuant to Sections 20(b), 20(d), and 22(a) 

of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. §§ 77t(b), 77t(d), and 77v(a)] and 

Sections 21(d), 21(e), and 27 of the Securities Exchange Act of 1934 (“Exchange Act”) 

[15 U.S.C. §§ 78u(d), 78u(e), and 78aa]. 

8. This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d)(1) 

and 22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d)(1), and 77v(a)] and Sections 21(d), 

21(e) and 27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e) and 78aa]. 

9. Defendants, directly or indirectly, made use of the means and instrumentalities of 

interstate commerce or of the mails in connection with the acts, transactions, practices, and 

courses of business alleged in this complaint. 

10. Venue is proper in this District pursuant to Section 22(a) of the Securities Act 

[15 U.S.C. § 77v(a)] and Section 27(a) of the Exchange Act [15 U.S.C. § 78aa(a)].  Theranos is 

headquartered in Newark, California, and Holmes resides in the District.  In addition, acts, 

transactions, practices, and courses of business that form the basis for the violations alleged in 

this complaint occurred in this District.  Defendants met with and solicited prospective Theranos 

investors in this District, and the relevant offers or sales of securities took place in this District. 

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COMPLAINT  
SEC V. HOLMES, ET AL. -4- 

SECURITIES AND EXCHANGE COMMISSION 
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11. Under Civil Local Rule 3-2(d), this civil action should be assigned to the San 

Jose Division, because a substantial part of the events or omissions which give rise to the claims 

alleged herein occurred in Santa Clara County. 

DEFENDANTS 

12. Elizabeth Holmes, age 34, of Los Altos Hills, California, is the Chief Executive 

Officer (“CEO”) and Chairman of the Board of Theranos, Inc.  Holmes was paid a salary of 

approximately $200,000 to $390,000 per year between 2013 and 2015.  During the same period, 

she also exercised approximately 53.7 million stock options and received super-majority voting, 

Class B common shares, which granted her almost complete voting control over the company.  

Holmes has never sold any of her Theranos stock.     

13. Theranos, Inc. is a Delaware corporation, established by Holmes in 2003, with 

its principal place of business in Newark, California.  From 2013 through 2015 (the “relevant 

time period”), Theranos’ principal place of business was in Palo Alto, California and its sole 

managing executives were Holmes and Balwani. 

RELEVANT INDIVIDUAL 

14. Ramesh “Sunny” Balwani, age 52, of Atherton, California, was the President 

and Chief Operating Officer of Theranos, Inc. from September 2009 to May 2016.   

FACTUAL ALLEGATIONS 

A. Background 

15. Elizabeth Holmes founded Theranos, a diagnostics company, in 2003 after 

leaving college during her second year.  Holmes had a vision of developing new diagnostic 

technologies, with a focus on small sample testing and easier access to testing results for 

prevention and earlier diagnosis.   

16. For the first five years of its existence, Theranos focused its efforts on developing 

its proprietary analyzer, the Theranos Sample Processing Unit, or “TSPU,” to analyze blood 

taken from a fingerstick and on assisting pharmaceutical companies with their clinical trials.  The 

earliest generation TSPU was a small point-of-care device that was capable of performing only a 

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COMPLAINT  
SEC V. HOLMES, ET AL. -5- 

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few tests.  A point-of-care device can be used to obtain results near where patients provide 

samples, such as medical offices.  

17. In 2009, as Theranos was on the verge of running out of money, Holmes turned 

to Balwani to guarantee a line of credit for the company.  Balwani joined the company and 

became its President and COO. 

18. From the time that Balwani joined Theranos until his departure in 2016, Theranos 

had no other senior managing executives besides Holmes and Balwani.  Holmes generally 

focused on device innovation, board interaction, and strategic relationships, while Balwani 

concentrated on developing software for Theranos’ technology and managing personnel and 

operations.  Still, they collaborated closely with each other and made decisions about the 

company together.   

B. In 2010, Theranos Decided to Pursue the Retail Clinical Laboratory Space 
Even Though Its Analyzer Was Not Commercially Ready 

19. Theranos spent years in research and development to develop an earlier-

generation TSPU.  The earlier-generation TSPU was designed to perform only one method of 

testing – immunochemistries – and could process only one sample at a time.  In 2009, Holmes 

and Balwani turned the company’s efforts towards developing a new version of the TSPU, which 

they hoped would one day be able to perform a broader range of laboratory testing by 

incorporating additional methods of testing.  They later referred to this version of the TSPU as 

the miniLab. 

20. In early 2010, even though the miniLab was not commercially ready, Holmes and 

Balwani decided to focus on the retail clinical laboratory market by pursuing contracts with a 

large national pharmacy chain (“Pharmacy A”) and a large national grocery chain (“Grocery 

A”).  Their vision was to place miniLabs at designated “Patient Service Centers” in retail stores 

so that patients could get their diagnostic tests performed while shopping. 

21. In connection with discussions about a potential partnership with Pharmacy A, 

Holmes approved and provided presentations and other written materials to Pharmacy A 

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COMPLAINT  
SEC V. HOLMES, ET AL. -6- 

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executives representing that Theranos had the ability to conduct a broad range of tests on its 

proprietary analyzer, including general chemistry tests, wellness tests, and some predictive and 

diagnostic health tests (which involved methods beyond immunochemistries).  These materials 

stated that Theranos would be ready to begin blood testing on its proprietary analyzer at 

Pharmacy A stores by the fourth quarter of 2010.   

22. Holmes also told Pharmacy A executives that Theranos could conduct hundreds 

of blood tests through fingerstick (or the puncture of a finger), that its testing could be conducted 

in a rapid timeframe (in less than one hour), and that it could be offered for a reasonable price 

(much less than Theranos’ competitors).  Holmes also told Pharmacy A that its analyzer was 

already deployed on military helicopters.  

23. Based on these representations, Pharmacy A executives thought that the miniLab 

was capable of performing, in a clinical lab setting, a wide range of the tests offered by 

traditional laboratories.  For example, Holmes told Pharmacy A that Theranos could, on its 

analyzer – the miniLab – perform approximately 90 percent of the tests that a large, traditional 

central lab could perform.  In July 2010, Pharmacy A entered into a contract with Theranos to 

roll out Theranos’ service to Pharmacy A stores.    

24. Holmes also made similar statements to Grocery A.  She told Grocery A’s then-

CEO that Theranos had successfully miniaturized the conventional laboratory.  Holmes also told 

him that Theranos’ analyzers were being deployed in the battlefield.  Based on these 

representations, in September 2010, Grocery A contracted with Theranos to offer Theranos 

patient testing in Grocery A stores.   

C. In 2013, On the Eve of the Pharmacy A Launch, Theranos Began Modifying 
Commercially-Available Analyzers and Running Misleading 
Demonstrations  

25. Between 2010 and 2013, Theranos continued to work on developing its miniLab 

with an eye towards launching its services in Pharmacy A and Grocery A stores.   

26. In 2011, Pharmacy A executives raised concerns it had with Theranos’ regulatory 

strategy, and told Holmes and Balwani that Theranos might need to obtain FDA approval for its 

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COMPLAINT  
SEC V. HOLMES, ET AL. -7- 

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miniLab and certify each of its stores as a laboratory in order for the analyzers to be used in 

Pharmacy A stores.   

27. Based on these concerns, in 2012, Theranos and Pharmacy A agreed to modify 

their original contract to reflect a roll-out of Theranos’ service in two phases.  In the first phase, 

before Theranos received regulatory approvals for its analyzers, patient samples would be 

transported from Pharmacy A stores to centralized laboratories operated by Theranos and tested 

on Theranos’ miniLab there.  Theranos opened and operated two centralized laboratories to test 

patient samples collected from Pharmacy A stores.  In the second phase, after Theranos had 

received the necessary regulatory approvals, Theranos’ retail offering at Pharmacy A would be 

performed on miniLabs placed in Pharmacy A stores. 

28. But as September 2013 approached – the date for the launch of the first phase of 

the roll out of Theranos services in Pharmacy A stores – it became clear to Holmes that the 

miniLab would not be ready.  At the time, Theranos had not fully integrated other testing 

methods into the miniLab and had not completed the scientific verification steps needed to make 

any of its blood tests available on the miniLab for patient testing.  As a result, Holmes and 

Balwani made the decision to use Theranos’ earlier-generation TSPUs, which could only be used 

to perform immunochemistries, for patient testing. 

29. In order to offer a broader range of fingerstick tests at Pharmacy A, Holmes and 

Balwani asked Theranos’ engineers in July 2013 to modify third-party analyzers from 

commercial manufacturers so they could analyze fingerstick samples.  Theranos scientists spent 

the two months leading up to the retail launch preparing as many fingerstick tests as possible on 

the third-party analyzers, which could typically process only venous samples. 

30. Holmes and Theranos never told Pharmacy A and Grocery A about Theranos’ 

technological challenges.  For instance, in July and August 2013, Theranos coordinated 

technology demonstrations for various Pharmacy A executives in advance of the retail launch.  

Holmes instructed Theranos employees to place both earlier generation TSPUs and miniLabs in 

a demonstration room where Theranos collected fingerstick samples from Pharmacy A 

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COMPLAINT  
SEC V. HOLMES, ET AL. -8- 

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executives.  Instead of using these machines to process the tests on these samples, and 

unbeknownst to the Pharmacy A executives, Theranos used the modified third-party machines to 

process a portion of the tests.   

31. Holmes also instructed Theranos employees to place numerous miniLabs – which 

could only be used for research and development purposes and could not be used for clinical 

testing – in a room in Theranos’ clinical lab.  This made it appear as if Theranos used its miniLab 

for clinical purposes.  Holmes then led a group of Pharmacy A executives on a tour of that room, 

and those Pharmacy A executives saw rows of miniLabs in Theranos’ clinical lab.   

32. Based on Holmes’ presentation, Pharmacy A executives understood that the 

blood from their demonstration samples would be tested on Theranos’ miniLabs.  Holmes never 

told the executives that Theranos was actually testing some of their blood on modified third-

party analyzers.   

33. At the end of 2013, Pharmacy A agreed to accelerate a portion of a $100 million 

“innovation fee” to help Theranos broaden its roll-out of services to Pharmacy A stores.  

Unbeknownst to Pharmacy A, Theranos was scaling its retail offering by relying on third-party 

analyzers. 

34. Neither Holmes nor Theranos ever told anyone at Pharmacy A that Theranos 

used third-party analyzers, including those that had been modified to test fingerstick blood.  

Holmes and Theranos also never told Pharmacy A that Theranos was using third-party analyzers 

to perform the majority of its testing.  If Pharmacy A had known that Theranos was using third-

party analyzers for a majority of its patient testing, it would not have accelerated the payment of 

the innovation fee. 

35. Holmes and Balwani also denied there were problems with Theranos’ technology 

in discussions with Grocery A.  For example, in response to a question about a rumor that 

Theranos was facing technological challenges with its proprietary analyzers, Holmes and 

Balwani assured Grocery A’s General Counsel that there was no technological problem with the 

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COMPLAINT  
SEC V. HOLMES, ET AL. -9- 

SECURITIES AND EXCHANGE COMMISSION 
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analyzers and that the TSPU was capable of performing 90 percent of the blood tests typically 

requested by doctors for their patients. 

36. From its retail launch in September 2013 to the time it closed its clinical 

laboratories in 2016, Theranos never used its miniLab for patient testing in its clinical laboratory.  

Theranos conducted – at its height –12 tests using the earlier-generation TSPU, and processed 

about 50 to 60 tests using the modified third-party analyzers.  Theranos processed the remaining 

100-plus tests it offered at Pharmacy A using the same types of industry standard technology as 

other traditional laboratories, or sent tests out to third-party laboratories.   

D. Starting in September 2013, Holmes and Theranos Began Publicly Touting 
Theranos’ Proprietary Analyzers in Interviews with the Media, 
Notwithstanding Theranos’ Use of Commercially-Available Analyzers for 
Patient Testing  

37. From 2013 to 2014, Theranos and Holmes emerged into the spotlight by issuing a 

press release touting the launch of its retail offering with Pharmacy A and granting a number of 

media interviews for articles that Holmes later used to solicit investors.  In September 2013, 

Theranos announced a partnership with Pharmacy A to offer a “new lab testing service through 

Pharmacy A pharmacies nationwide.”  By going to a Pharmacy A store in Palo Alto, California, 

the first location to offer Theranos testing, consumers could “complete any clinician-directed lab 

tests with as little as a few drops of blood and results available in a matter of hours.”   

38. Around the same time, Holmes sat down with a reporter for the Wall Street 

Journal purportedly to discuss the state of Theranos’ business.  A Wall Street Journal article 

accompanying the Pharmacy A launch announcement stated:  

The secret that hundreds of employees are now refining involves devices that 
automate and miniaturize more than 1,000 laboratory tests, from routine blood work 
to advanced genetic analyses.  Theranos’ processes are faster, cheaper, and more 
accurate than the conventional methods and require only microscopic blood 
volumes, not vial after vial of the stuff.   

39. Additional articles written after interviews with Holmes continued to raise 

Theranos’ public profile and tout its technological capabilities.  An April 2014 Wired article 

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COMPLAINT  
SEC V. HOLMES, ET AL. -10- 

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stated that “[i]nstead of vials of blood – one for every test needed – Theranos requires only a 

pinprick and a drop of blood.  With that they can perform hundreds of tests, from standard 

cholesterol checks to sophisticated genetic analyses.”   

40. Similarly, a June 2014 Fortune article noted that “[Theranos] currently offers 

more than 200 – and is ramping up to offer more than 1,000 – of the most commonly ordered 

blood diagnostic tests, all without the need for a syringe.”  Fortune also distinguished Theranos 

from other blood testing companies because “Theranos [] does not buy any analyzers from third 

parties.”  In contrast to the large traditional blood analyzers that occupied whole rooms, 

Theranos’ proprietary analyzers “look[ed] like large desktop computer towers.”  

41. By the end of 2014, Forbes declared that Holmes was “the youngest self-made 

woman billionaire” whose company could, “[w]ith a painless prick, . . . quickly test a drop of 

blood at a fraction of the price of commercial labs which need more than one vial.”  

42. Holmes sat for interviews and communicated with journalists about Theranos and 

its technology.  In email conversations with the Fortune reporter, Holmes stated that “it is ok to 

say the analytical systems are about the size of a desktop computer.”  Holmes also suggested 

describing Theranos’ miniLab as “much smaller than in conventional laboratories or have a 

smaller space requirement than conventional laboratories.”  The Fortune reporter used a version 

of this statement in his article on Theranos.  As Holmes knew, or was reckless in not knowing, 

this was misleading because the device she was describing – the miniLab – was not in use in 

Theranos’ clinical laboratory. 

43. Holmes did not correct the false or misleading statements in the articles that were 

published between 2013 and 2015.  In fact, in some instances, she and Theranos provided some 

of the articles containing untrue or misleading statements to potential investors. 

E. Beginning in 2013, Holmes and Theranos Raised Over $700 Million from 
Investors and Holmes Obtained Super-Voting Control of Theranos While 
Misleading Investors 

44. In late 2013, Theranos had approximately $30 million in cash and short-term 

securities, which would fund the company’s operations for only a few months.  As Holmes 

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COMPLAINT  
SEC V. HOLMES, ET AL. -11- 

SECURITIES AND EXCHANGE COMMISSION 
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knew, Theranos needed cash to continue spending money on research and development to 

advance the miniLab, which at that time was not ready for commercial use. 

45. Holmes anticipated that Theranos would need to raise much more money than it 

had in its earlier financing rounds and that such fundraising likely would dilute her ownership of 

the company.  In order to retain her control of the company, Holmes in early 2014 convinced 

Theranos’ board and shareholders to pass a resolution creating a new, separate class of shares 

(“Class B Shares”).   

46. This resolution (1) split Theranos’ stock in a 1 to 5 ratio to allow for future 

fundraising, and (2) created Class B Shares, which had super-voting (100x) power and would be 

given only to Holmes.  Shareholders were given only a few days to consider and vote on this 

resolution.  Following the resolution’s passage, Holmes owned just over half of the company’s 

outstanding shares, but over 99 percent of its voting power.  Holmes obtained the Class B Shares 

during the relevant time period. 

47. From late 2013 to 2015, Holmes, Balwani, and Theranos raised over $700 

million from investors in two financing rounds.  These investors believed – based on false and 

misleading statements by Holmes – that Theranos had successfully developed a proprietary 

analyzer that could conduct the full range of laboratory testing from a small sample of blood.   

1. The Investor Solicitation Process Generally Included a Face-to-Face 
Meeting, a Technology Demonstration, and a Binder of Materials 

48. After an introduction to Holmes, potential investors would typically meet face-to-

face with Holmes, and at times, Balwani.  During this meeting, which normally took place at 

Theranos’ headquarters, Holmes described her vision for the company, including her motivation 

to develop a technology that could perform blood testing on small samples – spurred by her own 

fear of needles – and her larger desire to provide cheaper, faster, and more accurate laboratory 

testing so that diagnoses of serious conditions and diseases could take place sooner. 

49. This initial meeting was often followed by a purported demonstration of 

Theranos’ proprietary analyzers, the TSPU, and the miniLab.  In several instances, potential 

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COMPLAINT  
SEC V. HOLMES, ET AL. -12- 

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investors would be taken by Holmes and Balwani to a different room to view Theranos’ desktop 

computer-like analyzers.  A phlebotomist would arrive to draw their blood through fingerstick, 

using a nanotainer, a Theranos-developed collection device.  Then the sample was either inserted 

into the TSPU or taken away for processing.  Based on what they saw, potential investors 

believed that Theranos had tested their blood on either an earlier-generation TSPU or the 

miniLab.  As Holmes knew, or was reckless in not knowing, however, Theranos often actually 

tested their blood on third-party analyzers, because Theranos could not conduct all of the tests it 

offered prospective investors on its proprietary analyzers.   

50. Theranos also sent investors a binder of background materials, which Holmes 

instructed employees to compile.  In addition to incorporation documents and shareholder 

agreements, the typical investor binder included (1) a cover letter drafted and signed by Holmes; 

(2) a company overview slide deck presentation; (3) reports of clinical trials work Theranos 

performed with its pharmaceutical companies; (4) financial projections; and (5) articles and 

profiles about Theranos, including the 2013 and 2014 articles from The Wall Street Journal, 

Wired, and Fortune that were written after Holmes provided them with interviews.  These 

materials were important to investors in considering whether to invest in Theranos.   

51. One section of the investor binders touted Theranos’ work with pharmaceutical 

companies and contained a number of reports purportedly related to the clinical trials work 

Theranos had performed with those pharmaceutical companies.  The reports prominently 

featured the company logos of well-known pharmaceutical companies, suggesting that the 

reports were drafted by these pharmaceutical companies.  However, as Holmes knew, only one 

report in the investor binder was co-written by a pharmaceutical client.  The other two reports 

were drafted by Theranos employees, despite displaying the logos of pharmaceutical companies.  

Investors believed that pharmaceutical companies had written their own endorsements of 

Theranos’ technology, when the pharmaceutical companies had not. 

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COMPLAINT  
SEC V. HOLMES, ET AL. -13- 

SECURITIES AND EXCHANGE COMMISSION 
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2. Holmes and Theranos Made a Series of False or Misleading 
Statements to Investors That Confirmed the Company’s Public 
Narrative 

52. Holmes made statements to investors about the status of Theranos’ technology, 

historical contracts, commercial relationships, regulatory strategy, and financial performance that 

were consistent with the public image she and Theranos were promoting of Theranos as a 

company that was revolutionizing the diagnostics industry. 

a. Holmes and Theranos Represented That Theranos’ 
Proprietary Analyzer Was Capable of Conducting the Full 
Range of Testing When It Could Not 

53. Holmes represented to investors that Theranos’ miniLab was capable of 

processing a full range of laboratory tests.  For instance, Holmes and Balwani told one investor 

that Theranos’ proprietary analyzer could process over 1,000 Current Procedural Terminology 

(“CPT”) codes and that Theranos had developed a technological solution for an additional 300 

CPT codes.  She made similar representations to other investors, claiming that Theranos could 

run all of its blood tests on one analyzer using chemicals from one consumable cartridge.   

54. Theranos’ company overview presentation that Theranos included in investor 

binders also echoed these same statements.  The presentation noted, among other things, that 

“Theranos’ proprietary, patented technology runs comprehensive blood tests from a finger-stick 

and tests from micro-samples of other matrices, and generates significantly higher integrity data 

than currently possible.”  

55. But Theranos’ analyzers never performed comprehensive testing or processed 

1,000 CPT codes in its clinical lab.  In fact, as Holmes knew, or was reckless in not knowing, 

Theranos’ clinical lab used the TSPU only to perform 12 of the tests offered to patients.  

56. In addition to not disclosing the use of third-party analyzers to conduct the 

demonstrations, Holmes’ and Theranos’ actions made it appear as if Theranos’ proprietary 

analyzer had more extensive capabilities than it actually did.  When potential investors tried out 

Theranos’ services by bringing a physician’s laboratory requisition to a Pharmacy A store, 

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SEC V. HOLMES, ET AL. -14- 

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Holmes instructed Theranos employees to remove certain tests from the order if Theranos was 

unable to perform those tests using a fingerstick collection.     

57. This conduct led investors to believe that Theranos’ proprietary analyzers were 

broadly in use by Theranos and that they produced results on a broader range of tests than they 

actually did.   Investors would not have invested had they known Theranos’ promises about its 

ability to run a broad range of tests were untrue and that the TSPU was being used to run only a 

limited number of tests in its lab.  When presenting to investors, Holmes knew, or was reckless 

in not knowing, that the miniLab was not presently capable of processing a full range of 

laboratory tests. 

58. Holmes’ statements about the capabilities of Theranos’ proprietary analyzer were 

important to many potential investors because the technology was a basis of their investments. 

b. Holmes and Theranos Stated That Theranos Manufactured 
All of Its Own Analyzers When It Actually Used Third-Party 
Analyzers to Run the Majority of Its Tests 

59. Holmes also represented to investors that Theranos manufactured all of its own 

analyzers, when Theranos had in fact only manufactured its own TSPUs.  For instance, Holmes 

told one investor that Theranos used its own analyzer equipment and did not buy analyzer 

equipment from third parties.  She and Balwani explained to another investor that 100 percent of 

Theranos’ analyzers were manufactured in Theranos’ facility in Newark, California.   

60. The company overview presentation in some investor binders also showed 

pictures of the TSPU and miniLab under the heading “Theranos Systems,” but excluded pictures 

of the third-party analyzers Theranos was using.   

61. Finally, the Fortune article – for which Holmes was extensively interviewed and 

which she included in materials sent to investors – stated that “Theranos [] does not buy any 

analyzers from third parties.” 

62. These statements gave potential investors the impression that Theranos was only 

using its own TSPUs and miniLabs for patient testing.  

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COMPLAINT  
SEC V. HOLMES, ET AL. -15- 

SECURITIES AND EXCHANGE COMMISSION 
44 MONTGOMERY STREET, SUITE 2800 

SAN FRANCISCO, CA 94104 ǁ (415) 705-2500  

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63. As Holmes knew, or was reckless in not knowing, statements that Theranos 

manufactured all of its analyzers were false or misleading in light of Theranos’ broad use of 

third-party analyzers.  Theranos conducted the majority of its testing using third-party analyzers.  

64. Theranos’ capability to run the full range of laboratory testing on its proprietary 

analyzer was a key competitive advantage potential investors considered when deciding whether 

to invest in the company. 

c. Holmes and Theranos Made False or Misleading Statements 
About Theranos’ Historical Contracts with the DOD  

65. Holmes also made false or misleading statements concerning Theranos’ historical 

business contracts with the DOD.  In Holmes’ cover letter, which she included in investor 

binders, she highlighted the company’s “historical” work with “military clients.”  The third page 

of the company overview presentation introduces the company with the following statement, 

“[c]urrent and past clients include . . . U.S. and foreign government health and military 

organizations.”   

66. Holmes also made other statements that gave potential investors the impression 

that these historical relationships were meaningful.  Holmes told multiple investors that 

Theranos’ technology had been deployed by the DOD in the battlefield and in Afghanistan.  

Holmes told investors that the DOD had deployed Theranos’ miniLab on medevac helicopters.    

67. Holmes also included a comment in her cover letter that “Theranos has grown 

from cash from its contracts for some time,” which misled investors into believing that these 

contracts funded Theranos’ operations.  She made the same comment verbally to other potential 

investors.  Although Theranos had discussions with different military and government entities, 

the company earned limited revenues from those efforts, and Theranos primarily grew from 

investor capital raises. 

68. Holmes knew, or was reckless in not knowing, that these statements were false 

and misleading.  While Theranos’ technology was used in a DOD burn study, it was never 

deployed by the DOD in the battlefield, in Afghanistan, or on medevac helicopters.  From 2011 

Case 5:18-cv-01602   Document 1   Filed 03/14/18   Page 15 of 24



  

COMPLAINT  
SEC V. HOLMES, ET AL. -16- 

SECURITIES AND EXCHANGE COMMISSION 
44 MONTGOMERY STREET, SUITE 2800 

SAN FRANCISCO, CA 94104 ǁ (415) 705-2500  

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to 2014, Holmes had discussions with multiple divisions of the DOD.  However, Theranos 

generated only approximately $300,000 from three DOD contracts.   

69. Holmes’ statements about Theranos’ history with the DOD were important to 

potential investors because these relationships lent legitimacy to Theranos’ business and its 

proprietary analyzer.   

d. Holmes and Theranos Told Investors That Theranos’ 
Relationships with Pharmacy A and Grocery A Were 
Thriving When They Were Stalled 

70. During meetings and in investor binders, Holmes described Theranos’ thriving 

relationships with Pharmacy A and Grocery A.  Much of the company overview presentation 

was dedicated to Theranos’ relationship with Pharmacy A, showing pictures of the patient 

service centers where patients would get their fingers pricked, and a map of the number of 

Pharmacy A stores across the country that would soon be offering Theranos’ blood testing.   

71. Holmes also noted, in her cover letter, that since the launch of Theranos’ roll-out 

in Pharmacy A stores, the company had also begun “operating in the consumer, physician, and 

hospital laboratory testing business,” highlighting the importance of the Pharmacy A relationship 

in paving the way for these other lines of business.  

72. Most importantly, Holmes represented to numerous investors in late 2014 that 

Theranos was expected to roll out its retail services to hundreds of Pharmacy A stores in 2015.  

This information was also included in financial projections that Theranos sent to investors that 

were based on the assumption that Theranos would be rolling out to 800 or 900 stores by year-

end 2015. 

73. However, by late 2014, while Theranos was raising the bulk of the over $700 

million it raised during the relevant time period, Holmes was aware that Theranos’ retail roll out 

with Pharmacy A was stalled due to, among other issues, some concerns Pharmacy A executives 

had with regard to Theranos’ performance.    

74. Holmes knew that patient traffic and the percentage of collections being 

performed by fingerstick were important metrics for Pharmacy A and also knew that Pharmacy 

Case 5:18-cv-01602   Document 1   Filed 03/14/18   Page 16 of 24



  

COMPLAINT  
SEC V. HOLMES, ET AL. -17- 

SECURITIES AND EXCHANGE COMMISSION 
44 MONTGOMERY STREET, SUITE 2800 

SAN FRANCISCO, CA 94104 ǁ (415) 705-2500  

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A had concerns regarding the lower than expected number of fingerstick collections being 

performed in its stores. 

75. In December 2014, Holmes met with Pharmacy A executives to discuss 

potentially modifying the parties’ relationship to a landlord and tenant model, whereby Theranos 

would rent space in Pharmacy A stores.  Holmes did not share any of these developments with 

investors.  Holmes knew, or was reckless in not knowing, that Theranos would not be expanding 

into Pharmacy A as quickly as she represented it would. 

76. Holmes also told investors in late 2014 that Theranos services would be rolled 

out in more than 100 Grocery A stores in January 2015.  But the relationship with Grocery A had 

already begun to stall in 2013, during which the parties had started discussing the possibility of 

modifying the contract so that Theranos would rent space in individual supermarkets.  The 

parties were still engaged in these discussions in 2014.  

77. By June 2014, Holmes told a Theranos board member that she was contemplating 

terminating Theranos’ relationship with Grocery A.  By August 2014, the parties ceased to be in 

communication with one another.  Nevertheless, when meeting with investors in the fall of 2014, 

Holmes continued to discuss Theranos’ relationship with Grocery A to investors.  Holmes knew, 

or was reckless in not knowing, that her statements about Theranos’ relationship with Grocery A 

were false or misleading. 

78. The statements made by Holmes about the status of the Pharmacy A and Grocery 

A relationships were important to investors because these contracts gave potential investors 

confidence that Theranos’ technologies were commercially ready.  Pharmacy A and Grocery A 

were also the major drivers of future revenues for the company.  In reality, Holmes and Theranos 

were attempting to renegotiate Theranos’ agreements with these retail businesses in light of the 

delays in rolling out. 

 

 

Case 5:18-cv-01602   Document 1   Filed 03/14/18   Page 17 of 24



  

COMPLAINT  
SEC V. HOLMES, ET AL. -18- 

SECURITIES AND EXCHANGE COMMISSION 
44 MONTGOMERY STREET, SUITE 2800 

SAN FRANCISCO, CA 94104 ǁ (415) 705-2500  

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e. Holmes Claimed That Theranos Was Not Required to Seek 
FDA Approval Despite Repeatedly Being Told That Approval 
Was Necessary for Its Analyzers and Tests 

79. When speaking to potential investors in late 2013 through 2015, Holmes 

consistently stated that Theranos did not need to obtain approval from the FDA for its miniLab 

and tests, and instead said that Theranos was applying for FDA approval voluntarily because it 

was the “gold standard.”  For instance, Holmes told multiple investors that approval was not 

required for the miniLab because Theranos was not selling its devices to other companies.   

80. Holmes represented to business partners and investors that FDA approval was not 

necessary because she believed that Theranos’ tests were laboratory developed tests (“LDTs”), 

or tests developed and used inside a clinical laboratory, over which the FDA had historically 

exercised its enforcement discretion to not require FDA clearance.  However, she and Balwani 

were told by multiple parties, including Pharmacy A, that the FDA might reject this regulatory 

strategy because Theranos’ miniLab had not previously obtained approval from the FDA.  

Holmes and FDA representatives discussed Theranos’ regulatory strategy in late 2013 through 

2014 while Theranos continued to offer LDTs to retail patients.   

81. By the time of Theranos’ financing round in 2014, FDA representatives told 

Holmes that clearance or approval would be necessary for Theranos’ analyzer and tests.  In late 

2013 and throughout 2014, FDA representatives met with Holmes and sent letters to Theranos 

stating that they did not believe Theranos was offering LDTs, and that even if Theranos was not 

selling its miniLab or tests, FDA clearance or approval was necessary.  Based on these 

communications, Holmes agreed to submit all components of Theranos’ testing technology to 

the FDA for clearance or approval.  However, Holmes continued to raise additional funds while 

telling investors Theranos was seeking FDA approval voluntarily.  But Holmes knew, or was 

reckless in not knowing, that FDA approval was necessary for Theranos’ analyzer and tests. 

82. Holmes’ statements that Theranos did not need FDA approval or clearance were 

important to investors because approval or clearance would have been an obstacle in the 

company’s path to realizing full commercialization.     

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COMPLAINT  
SEC V. HOLMES, ET AL. -19- 

SECURITIES AND EXCHANGE COMMISSION 
44 MONTGOMERY STREET, SUITE 2800 

SAN FRANCISCO, CA 94104 ǁ (415) 705-2500  

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f. Holmes Told Investors That Theranos Had Generated or 
Would Generate Over $100 Million in Revenues in 2014 and 
That It Was On Track to Make $1 Billion in Revenues in 
2015, But This Information Had No Basis  

83. Theranos included financial information in the investor binders that projected that 

Theranos would generate over $100 million in revenues and break even in 2014.  These 

documents, which were drafted by Balwani, and which Holmes reviewed and shared with 

potential investors, also represented that Theranos expected to generate approximately $1 billion 

in revenues in 2015.   

84. The projections further indicated that Theranos would obtain revenue from 

several lines of business, including retail pharmacies (Pharmacy A and Grocery A), samples 

collected from physicians’ offices, samples collected from hospitals, and pharmaceutical 

services.   

85. Holmes also provided historical financial information to one potential investor.  

In August 2015, Holmes met with a potential investor, during which she provided Theranos’ 

financial results for fiscal year 2014.  These financials showed 2014 net revenues of $108 

million, and 2015 and 2016 net revenue projections of $240 million and $750 million, 

respectively. 

86. But Theranos’ actual financial performance bore no resemblance to the financial 

information Holmes shared with investors.  Theranos recorded little more than $100,000 in 

revenue in 2014 and was nowhere near generating $100 million in revenue by the end of 2014. 

87. Holmes knew, or was reckless in not knowing, that Theranos sent different 

financial information containing Theranos’ actual revenue numbers (a little over $100,000) to a 

third-party valuation firm that it had retained to value the company’s common stock.  Some of 

Theranos’ projections, provided to potential investors in October 2014, stated Theranos would 

earn $40 million from pharmaceutical services, $46 million from lab services provided to 

hospitals, and $9 million from lab services provided to physicians’ offices, all by the end of 

2014.  In reality, Theranos had no revenues from any of those lines of business. 

Case 5:18-cv-01602   Document 1   Filed 03/14/18   Page 19 of 24



  

COMPLAINT  
SEC V. HOLMES, ET AL. -20- 

SECURITIES AND EXCHANGE COMMISSION 
44 MONTGOMERY STREET, SUITE 2800 

SAN FRANCISCO, CA 94104 ǁ (415) 705-2500  

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88. Holmes also knew, or was reckless in not knowing, that the 2015 $1 billion 

revenue projections were unreasonable.  By late 2014, Holmes knew Theranos’ roll outs in 

Pharmacy A and Grocery A stores were not going as planned.  Theranos and Holmes also knew 

the company had made limited progress in advancing the other lines of business reflected in the 

projections.  Holmes knew that Theranos had no active discussions with pharmaceutical 

companies, had partnered with only a handful of hospitals, and had no knowledge of any 

contracts between Theranos and physicians’ offices.   

89. These financial projections were important to investors because they gave the 

impression that Theranos had already secured contracts to deliver these revenues and that the 

company’s business was growing rapidly.  

F. Theranos Exited the Commercial Laboratory Business in 2016, and By the 
End of 2017, Was On the Verge of Bankruptcy 

90. In 2016, after regulatory inspections of Theranos’ clinical laboratories and 

manufacturing facility, Theranos and Holmes exited the retail laboratory business and shifted the 

company’s focus away from retail clinical testing and back to developing the miniLab.  

Additionally, Grocery A and Pharmacy A terminated their relationships with Theranos. 

91. In 2017, Theranos and Holmes settled a lawsuit with an investor that alleged it 

was defrauded by Theranos.  Theranos also settled a lawsuit with Pharmacy A, which brought an 

action for breach of contract against the company. 

92. In 2017, Theranos conducted a tender offer to recapitalize certain investors from 

its later fundraising rounds.  As part of that recapitalization, Holmes returned approximately 34 

million of her shares to Theranos to prevent other investors from being diluted as a result of the 

tender offer.  As part of the tender offer, Theranos agreed not to take certain corporate actions – 

including the decisions to issue new equity or amend the company’s bylaws – without a vote of 

the majority of shareholders who invested during the relevant time period. 

93. Due to the company’s liquidation preference, if Theranos is acquired or is 

otherwise liquidated, Holmes would not profit from her ownership until – assuming redemption 

Case 5:18-cv-01602   Document 1   Filed 03/14/18   Page 20 of 24COMPLAINT  
SEC V. HOLMES, ET AL. -21- 

SECURITIES AND EXCHANGE COMMISSION 
44 MONTGOMERY STREET, SUITE 2800 

SAN FRANCISCO, CA 94104 ǁ (415) 705-2500  

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of certain warrants – over $750 million is returned to defrauded investors and other preferred 

shareholders. 

94. In late 2017, on the verge of bankruptcy, Theranos obtained a term loan, secured 

on the value of Theranos’ patent portfolio, that it anticipated would allow the company to 

continue work on the miniLab for approximately one year.   

FIRST CLAIM FOR RELIEF 

Violations of Section 10(b) of the Exchange Act and Rule 10b-5 

By Both Defendants 

95. The Commission re-alleges and incorporates by reference Paragraph Nos. 1 

through 94. 

96. By engaging in the conduct described above, Defendants Holmes and Theranos, 

directly or indirectly, in connection with the purchase or sale of securities, by the use of means or 

instrumentalities of interstate commerce, or the mails, with scienter: 

(a) Employed devices, schemes, or artifices to defraud; 

(b) Made untrue statements of material facts or omitted to state material facts 

necessary in order to make the statements made, in the light of the circumstances 

under which they were made, not misleading; and 

(c) Engaged in acts, practices, or courses of business which operated or would 

operate as a fraud or deceit upon other persons, including purchasers and sellers 

of securities. 

97. By reason of the foregoing, Defendants violated, and unless restrained and 

enjoined will continue to violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and 

Rule 10b-5 thereunder [17 C.F.R. §§ 240.10b-5]. 

Case 5:18-cv-01602   Document 1   Filed 03/14/18   Page 21 of 24



  

COMPLAINT  
SEC V. HOLMES, ET AL. -22- 

SECURITIES AND EXCHANGE COMMISSION 
44 MONTGOMERY STREET, SUITE 2800 

SAN FRANCISCO, CA 94104 ǁ (415) 705-2500  

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SECOND CLAIM FOR RELIEF 

Violations of Sections 17(a)(1), (2), and (3) of the Securities Act 

By Both Defendants 

98. The Commission re-alleges and incorporates by reference Paragraph Nos. 1 

through 94. 

99. By engaging in the conduct described above, Defendants Holmes and Theranos, 

directly or indirectly, in the offer or sale of securities, by use of the means or instruments of 

transportation or communication in interstate commerce or by use of the mails, 

(1) with scienter, employed devices, schemes, or artifices to defraud; 

(2) obtained money or property by means of untrue statements of material fact or by 

omitting to state a material fact necessary in order to make the statements made, 

in light of the circumstances under which they were made, not misleading; and 

(3) engaged in transactions, practices, or courses of business which operated or 

would operate as a fraud or deceit upon purchasers. 

100. By reason of the foregoing, Defendants violated, and unless restrained and 

enjoined will continue to violate, Section 17(a) of the Securities Act [15 U.S.C. §§ 77q(a)]. 

PRAYER FOR RELIEF 

WHEREFORE, the Commission respectfully requests that this Court: 

I. 

Permanently enjoin Defendants Holmes and Theranos from directly or indirectly 

violating Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], and Section 10(b) of the 

Exchange Act [15 U.S.C. § 78j(b)], and Rule 10b-5 [17 C.F.R. § 240.10b-5] thereunder. 

II. 

Issue an order requiring Defendant Holmes to pay a civil monetary penalty pursuant to 

Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d) of the Exchange Act 

[15 U.S.C. § 78u(d)(3)]. 

Case 5:18-cv-01602   Document 1   Filed 03/14/18   Page 22 of 24



  

COMPLAINT  
SEC V. HOLMES, ET AL. -23- 

SECURITIES AND EXCHANGE COMMISSION 
44 MONTGOMERY STREET, SUITE 2800 

SAN FRANCISCO, CA 94104 ǁ (415) 705-2500  

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III. 

Issue an order requiring Defendant Holmes to return 18,897,137 Class B common stock 

shares in Theranos to Theranos within 14 days of entry of judgment pursuant to the Court’s 

equitable powers. 

IV. 

Issue an order requiring Defendant Holmes to provide written notice to Theranos that she 

elects to convert all shares of Class B common stock shares in Theranos to Class A common 

stock shares, and take all necessary administrative actions to effectuate the conversion of these 

Class B common stock shares to Class A common stock shares within 28 days of entry of 

judgment pursuant to the Court’s equitable powers. 

V. 

Prohibit Defendant Holmes from serving as an officer or director of any entity having a 

class of securities registered with the Commission pursuant to Section 12 of the Exchange Act 

[15 U.S.C. § 78l] or that is required to file reports pursuant to Section 15(d) of the Exchange Act 

[15 U.S.C. § 78o(d)], pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)] and 

Section 21(d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)]. 

VI. 

Retain jurisdiction of this action in accordance with the principles of equity and the 

Federal Rules of Civil Procedure in order to implement and carry out the terms of all orders and 

decrees that may be entered, or to entertain any suitable application or motion for additional 

relief within the jurisdiction of this Court. 

 

 

 

 

 

Case 5:18-cv-01602   Document 1   Filed 03/14/18   Page 23 of 24



  

COMPLAINT  
SEC V. HOLMES, ET AL. -24- 

SECURITIES AND EXCHANGE COMMISSION 
44 MONTGOMERY STREET, SUITE 2800 

SAN FRANCISCO, CA 94104 ǁ (415) 705-2500  

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VII. 

Grant such other and further relief as this Court may determine to be just and necessary. 

 

 

Dated: March 14, 2018  Respectfully submitted, 

 

 

  /s/ Jessica W. Chan     
JESSICA W. CHAN 
Attorney for Plaintiff 
SECURITIES AND EXCHANGE COMMISSION 

 

Case 5:18-cv-01602   Document 1   Filed 03/14/18   Page 24 of 24