SEC v. Ramesh "Sunny" Balwani, No. 5:18-cv-01603, Northern District of California (Mar. 14, 2018) — Complaint

COMPLAINT
SEC V. BALWANI

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.

RAMESH “SUNNY” BALWANI,

  Defendant.

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 Holmes and Theranos.
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION

COMPLAINT
SEC V. BALWANI

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

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2. Balwani, Holmes, 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. Balwani, Holmes, 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 Balwani’s and Holmes’ representations,
investors understood that 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 Balwani and Holmes, 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, Balwani, Holmes, 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
SEC V. BALWANI

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

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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 Balwani from future
violations of the securities laws, requiring Balwani to pay a civil monetary penalty, prohibiting
him from acting as an officer or director of any publicly-listed company, 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. Defendant, 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)].  Balwani
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.  Defendant met
with and solicited prospective Theranos investors in this District, and the relevant offers or sales
of securities took place in this District.
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.

COMPLAINT
SEC V. BALWANI

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

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DEFENDANT
12. Ramesh “Sunny” Balwani, age 52, of Atherton, California, was the President and
Chief Operating Officer of Theranos, Inc. from September 2009 to May 2016.  From 2013
through 2015 (the “relevant time period”), Balwani received a salary of between approximately
$99,000 and $200,000.
OTHER RELEVANT INDIVIDUAL AND ENTITY
13. Elizabeth Holmes, age 34, of Los Altos Hills, California, is the Chief Executive
Officer (“CEO”) and Chairman of the Board of Theranos, Inc.
14. Theranos, Inc. is  a Delaware corporation, with its principal place of business in
Newark, California.  During the relevant time period, Theranos’ principal place of business was
in Palo Alto, California and its sole managing executives were Holmes and Balwani.
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, before Balwani joined Theranos, 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 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  her then-boyfriend Balwani, who guaranteed a line of credit for the company.  Balwani joined
the company and became its President and COO that same year.

COMPLAINT
SEC V. BALWANI

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

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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, Balwani
and Holmes 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, Balwani
and Holmes 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, copying Balwani, provided presentations and other written materials to
Pharmacy A 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.

COMPLAINT
SEC V. BALWANI

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

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22. Balwani and 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).  Balwani also showed a Pharmacy A
executive a prototype of one of Theranos’ analyzers, which he represented was being used 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, Balwani and Holmes told Pharmacy A that it 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. Balwani and Holmes also made similar statements to Grocery A.  They told
Grocery A’s    then-CEO that Theranos had successfully miniaturized the conventional laboratory.
Balwani also was present when Holmes told Grocery A’s then-CEO 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 Balwani and Holmes that Theranos might need to obtain FDA approval for its
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,

COMPLAINT
SEC V. BALWANI

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

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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 Balwani and 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, Balwani and
Holmes 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, Balwani and
Holmes 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. Balwani and Holmes 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, with Balwani’s knowledge, instructed Theranos employees to place both earlier
generation TSPUs and miniLabs in a demonstration room where Theranos collected fingerstick
samples from Pharmacy A 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.

COMPLAINT
SEC V. BALWANI

SECURITIES AND EXCHANGE COMMISSION
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31. Based on Balwani’s and Holmes’ presentations, Pharmacy A executives
understood that the blood from their demonstration samples would be tested on Theranos’
miniLabs.  Balwani never told the executives that Theranos was actually testing some of their
blood on modified third-party analyzers.
32. 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.
33. Balwani never told anyone at Pharmacy A that Theranos used third-party
analyzers, including those that had been modified to test fingerstick blood.  He 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.
34. Balwani and Holmes 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, Balwani and
Holmes assured Grocery A’s    General Counsel    that there was no technological problem with the
analyzers and that the TSPU was capable of performing 90 percent of the blood tests typically
requested by doctors for their patients.
35. Balwani also instructed Theranos’ laboratory employees to use code names to
refer to third-party analyzers in its laboratory information systems, ensuring that even other
Theranos employees would not know that Theranos was using third-party analyzers to conduct a
portion of its patient testing.
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

COMPLAINT
SEC V. BALWANI

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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, 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
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

COMPLAINT
SEC V. BALWANI

SECURITIES AND EXCHANGE COMMISSION
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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. Balwani knew, or was reckless in not knowing, that the Fortune article contained
misstatements about Theranos’ technology.  Nevertheless, Balwani discussed the Fortune article
with investors but failed to correct the misstatements, instead commenting that the article
provided a favorable boost to Theranos’ public image.
42. Balwani did not correct the false or misleading statements in the articles that were
published between 2013 and 2015.  In fact, in some instances, as Balwani knew, or was reckless
in not knowing, Theranos provided to potential investors some of the articles containing untrue
or misleading statements.
E. Beginning in 2013, Balwani, Holmes, and Theranos Raised Over $700
Million from Investors
43. 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 Balwani and
Holmes 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.
44. From late 2013 to 2015, Balwani, Holmes, and Theranos raised over $700
million from investors in two financing rounds.  These investors believed – based on false and
misleading statements by Balwani and 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
45. 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

COMPLAINT
SEC V. BALWANI

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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.
46. This initial meeting was often followed by a purported demonstration of
Theranos’ proprietary analyzers, the TSPU, and the miniLab.  In several instances, potential
investors would be taken by Balwani and Holmes 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 Balwani knew, 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.
47. As Balwani knew, or was reckless in not knowing, 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.
2. Balwani and Holmes Made a Series of False or Misleading
Statements to Investors That Confirmed the Company’s Public
Narrative
48. Balwani and Holmes made statements to investors about the status of Theranos’
technology, historical contracts, commercial relationships, regulatory strategy, and financial

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performance that were consistent with the public image they were promoting of Theranos as a
company that was revolutionizing the diagnostics industry.
a. Balwani and Holmes Represented That Theranos’
Proprietary Analyzer Was Capable of Conducting the Full
Range of Testing When It Could Not
49. Balwani and Holmes represented to investors that Theranos’ miniLab was
capable of processing a full range of laboratory tests.  For instance, they 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.  In 2014, Balwani told an investor that Theranos had between 150 and 200
fingerstick tests operating in its clinical lab.
50. Theranos’ company overview presentation, which Balwani sent to a potential
investor, also echoed these same statements.  Under a slide titled “Same Tests, A Whole New
approach” and featuring a picture of a fingerprick and Theranos collection device, the
presentation included the statement “Theranos runs any test available in central laboratories, and
processes all sample types.”
51. But Theranos’ analyzers never performed comprehensive testing or processed
1,000 CPT codes, nor did Theranos ever offer between 150 and 200 fingerstick tests in its
clinical lab.  In fact, as Balwani knew, or was reckless in not knowing, Theranos’ clinical lab
used the TSPU only to perform 12 of the tests offered to patients.
52. In addition to not disclosing the use of third-party analyzers to conduct the
demonstrations, Balwani’s and Holmes’ 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,
Holmes, with Balwani’s knowledge, instructed Theranos employees to remove certain tests from
the order if Theranos was unable to perform those tests using a fingerstick collection.

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53. 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, Balwani knew, or was reckless
in not knowing, that the miniLab was not presently capable of processing a full range of
laboratory tests.
54. Balwani’s statements about the capabilities of Theranos’ proprietary analyzer
were important to potential investors because the technology was a basis of their investments.
b. Balwani and Holmes Stated That Theranos Manufactured All
of Its Own Analyzers When It Actually Used Third-Party
Analyzers to Run the Majority of Its    Tests
55. Balwani and 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, Balwani and Holmes told one investor that Theranos used its own analyzer equipment
and did not buy analyzer equipment from third parties.  Balwani and Holmes explained to
another investor that 100 percent of Theranos’ analyzers were manufactured in Theranos’ facility
in Newark, California.
56. The company overview presentation, which Balwani provided to at least one
investor, also showed pictures of the TSPU and miniLab under the heading “Theranos Systems,”
but excluded pictures of the third-party analyzers Theranos was using.
57. Finally, the Fortune article – which Balwani received and discussed with an
investor – stated that “Theranos [] does not buy any analyzers from third parties.”
58. These statements gave potential investors the impression that Theranos was only
using its own TSPUs and miniLabs for patient testing.
59. As Balwani 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.

COMPLAINT
SEC V. BALWANI

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

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60. 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. Balwani and Holmes Made False or Misleading Statements
About Theranos’ Historical Contracts with the DOD
61. Balwani and Holmes also made false or misleading statements concerning
Theranos’ historical business contracts with the DOD.  For instance, Balwani provided a
presentation to a potential investor that listed the DOD as a “[k]ey deployment” for Theranos.
62. Balwani and Holmes also made other statements that gave potential investors the
impression that these historical relationships were meaningful.  Balwani and Holmes told
multiple investors that Theranos’ technology had been deployed by the DOD in the battlefield
and in Afghanistan.  They also told investors that the DOD had deployed Theranos’ miniLab on
medevac helicopters.
63. Balwani told one potential investor in late 2013 that 75 percent of Theranos’
current revenues were from the military.  Balwani told another potential investor in late 2014 that
the company had long-dated contracts with the DOD that would provide future revenue to
Theranos.
64. Balwani 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
to 2014, Theranos had discussions with multiple divisions of the DOD.  However, Theranos
generated only approximately $300,000 from three DOD contracts.
65. Balwani’s statements about Theranos’ history with the DOD were important to
potential investors because these relationships lent legitimacy to Theranos’ business and its
proprietary analyzer.

COMPLAINT
SEC V. BALWANI

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

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d. Balwani and Holmes Told Investors That Theranos’
Relationships with Pharmacy A and Grocery A Were
Thriving When They Were Stalled
66. During meetings and in investor binders, Balwani and 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.  Notwithstanding that Balwani managed the Pharmacy A relationship, Balwani
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 Balwani drafted for investors that were based on the assumption that
Theranos would be rolling out to 800 or 900 stores by year-end 2015.
67. However, by late 2014, while Theranos was raising the bulk of the over $700
million it raised during the relevant time period, Balwani 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.
68. In August 2014, a senior Pharmacy A executive told Balwani that patient traffic
and fingerstick draw percentages would need to increase in order for the executive to convince
Pharmacy A management to roll out Theranos services to more stores.  At a partnership meeting
later that month, which Balwani attended, Theranos and Pharmacy A discussed reducing the
number of Pharmacy A stores that Theranos services would be rolled out to in 2015 from 500
stores to 200.
69. In December 2014, Balwani 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.  Balwani did not share any of these developments with
investors.  Balwani knew, or was reckless in not knowing, that Theranos would not be expanding
into Pharmacy A as quickly as he represented it would.

COMPLAINT
SEC V. BALWANI

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

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70. Balwani also told potential 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.
71. By August 2014, Grocery A and Theranos ceased to be in communication with
one another.  Nevertheless, when meeting with investors in the fall of 2014, Balwani continued
to  discuss Theranos’ relationship with Grocery A to investors.  Balwani knew, or was reckless in
not knowing, that his statements about Theranos’ relationship with Grocery A were false or
misleading.
72. The statements made by Balwani 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, Balwani and Holmes
were attempting to renegotiate Theranos’ agreements with these retail businesses in light of the
delays in rolling out.
e. Balwani and Holmes Claimed That Theranos Was Not
Required to Seek FDA Approval Despite Repeatedly Being
Told That Approval Was Necessary for Its Analyzers and
Tests
73. When speaking to potential investors in late 2013 through 2015, Balwani and
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.
For instance, Balwani told a potential investor that approval was not required for the miniLab
because Theranos was not selling its devices to other companies.
74. Balwani and Holmes represented to  business partners and investors that FDA
approval was not necessary because they believed that Theranos’ tests were laboratory developed
tests (“LDTs”), or tests developed and used inside a clinical laboratory, over which the FDA had

COMPLAINT
SEC V. BALWANI

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

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historically exercised its enforcement discretion to not require FDA clearance.  However,
Balwani and Holmes 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.
75. By the time of Theranos’ financing round in 2014, FDA representatives told
Balwani and Holmes that clearance or approval would be necessary for Theranos’ analyzer and
tests.  In late 2013 and throughout 2014, FDA representatives met with Balwani and Holmes,
and sent letters which Balwani received, 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, Balwani and Holmes agreed to submit all
components of Theranos’ testing technology to the FDA for clearance or approval.  However,
Balwani and Holmes continued to raise additional funds while telling potential investors
Theranos was seeking FDA approval voluntarily.  But Balwani knew, or was reckless in not
knowing, that FDA approval was necessary for Theranos’ analyzer and tests.
76. Balwani’s 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.
f. Balwani and 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
77. Balwani drafted the financial information that Theranos included in the investor
binders that projected that Theranos would generate over $100 million in revenues and break
even in 2014.  These documents also represented that Theranos expected to generate
approximately $1 billion in revenues in 2015.  Balwani told potential investors in October 2014
that he had confidence in the year-end 2014 projections, in part because they were already more
than nine months into the calendar year.

COMPLAINT
SEC V. BALWANI

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

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78. 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.
79. Some of Theranos’ projections, which Balwani 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.  And Balwani knew that Theranos was not on track to break even in
2014.
80. Theranos’ actual financial performance bore no resemblance to the financial
information Balwani 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.
81. Balwani knew, or was reckless in not knowing, the 2014 revenue projection was
baseless.  In October 2014, the same month he was providing year-end projected revenue figures
between $120 and $140 million to potential investors, Balwani told Theranos’ potential insurers
that Theranos was operating at an $8 million to $9 million monthly net loss.
82. Balwani also knew, or was reckless in not knowing, that Theranos was using
different projections with the third-party valuation firm that Theranos had retained to value the
company’s common stock.  The valuation firm prepared a report dated October 2014, which
Balwani received, that analyzed the value of Theranos’ common stock based on an assumption
that it would recognize approximately $1 million in revenue for 2014 and $110 million for 2015.
83. By late 2014, Balwani knew Theranos’ roll-outs in Pharmacy A and Grocery A
stores were not going as planned.  Balwani also knew the company had made limited progress in
advancing the other lines of business reflected in the projections.  Balwani 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.

COMPLAINT
SEC V. BALWANI

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

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Balwani thus also knew, or was reckless in not knowing, that the 2015 $1 billion revenue
projections were unreasonable.
84. 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. Balwani Left Theranos in 2016
85. In May 2016, after regulatory inspections of Theranos’ clinical laboratories and
its manufacturing facility, Balwani left Theranos.
86. In 2017, Balwani, Holmes, and Theranos settled a lawsuit with an investor that
alleged they had committed securities fraud.
FIRST CLAIM FOR RELIEF
Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder
87. The Commission re-alleges and incorporates by reference Paragraph Nos. 1
through 86.
88. By engaging in the conduct described above, Defendant, 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.
89. By reason of the foregoing, Defendant 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. BALWANI

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
90. The Commission re-alleges and incorporates by reference Paragraph Nos. 1
through 86.
91. By engaging in the conduct described above, Defendant 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,
(a) with scienter, employed devices, schemes, or artifices to defraud;
(b) 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
(c) engaged in transactions, practices, or courses of business which operated
or would operate as a fraud or deceit upon purchasers.
92. By reason of the foregoing, Defendant violated, and unless restrained and
enjoined will continue to violate, Section 17(a) of the Securities Act [15 U.S.C. §§ 77q(a)].
THIRD CLAIM FOR RELIEF
Aiding and Abetting Violations of Section 10(b) of the Exchange Act and Rule 10b-5
Thereunder
93. The Commission realleges and incorporates by reference paragraphs 1 through
86.
94. By engaging in the conduct described above, Holmes or 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;

COMPLAINT
SEC V. BALWANI

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

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(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.
95. By engaging in the acts and conduct alleged above, Defendant knowingly or
recklessly provided substantial assistance to Holmes’ or Theranos’ violations of 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], and
thereby aided and abetted such violations, and unless restrained and enjoined, will continue to
violate these provisions.

FOURTH CLAIM FOR RELIEF
Aiding and Abetting Violations of Section 17(a) of the Securities Act
96. The Commission realleges and incorporates by reference paragraphs 1 through
86.
97. By engaging in the conduct described above, Holmes or 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,
(a) with scienter, employed devices, schemes, or artifices to defraud;
(b) 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
(c) engaged in transactions, practices, or courses of business which operated
or would operate as a fraud or deceit upon purchasers.

COMPLAINT
SEC V. BALWANI

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

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98. By engaging in the acts and conduct alleged above, Defendant knowingly or
recklessly provided substantial assistance to Holmes’ or Theranos’ violations of Section 17(a) of
the Securities Act [15 U.S.C. §§ 77q(a)], and thereby aided and abetted such violations, and
unless restrained and enjoined, will continue to violate these provisions.
PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that this Court:
I.
Permanently enjoin Defendant 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 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)].
III.
Prohibit Defendant 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)].
IV.
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. BALWANI

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

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V.
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. BALWANI -1- 

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. 
 
RAMESH “SUNNY” BALWANI, 
 

  Defendant. 
 

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 Holmes and Theranos. 

UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF CALIFORNIA 

SAN JOSE DIVISION 

 

Case 5:18-cv-01603   Document 1   Filed 03/14/18   Page 1 of 23



  

COMPLAINT  
SEC V. BALWANI 
 

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2. Balwani, Holmes, 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. Balwani, Holmes, 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 Balwani’s and Holmes’ representations, 

investors understood that 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 Balwani and Holmes, 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, Balwani, Holmes, 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 

Case 5:18-cv-01603   Document 1   Filed 03/14/18   Page 2 of 23



  

COMPLAINT  
SEC V. BALWANI 
 

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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 Balwani from future 

violations of the securities laws, requiring Balwani to pay a civil monetary penalty, prohibiting 

him from acting as an officer or director of any publicly-listed company, 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. Defendant, 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)].  Balwani 

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.  Defendant met 

with and solicited prospective Theranos investors in this District, and the relevant offers or sales 

of securities took place in this District. 

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. 

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COMPLAINT  
SEC V. BALWANI 
 

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DEFENDANT 

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

Chief Operating Officer of Theranos, Inc. from September 2009 to May 2016.  From 2013 

through 2015 (the “relevant time period”), Balwani received a salary of between approximately 

$99,000 and $200,000. 

OTHER RELEVANT INDIVIDUAL AND ENTITY 

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

Officer (“CEO”) and Chairman of the Board of Theranos, Inc.   

14. Theranos, Inc. is a Delaware corporation, with its principal place of business in 

Newark, California.  During the relevant time period, Theranos’ principal place of business was 

in Palo Alto, California and its sole managing executives were Holmes and Balwani.    

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, before Balwani joined Theranos, 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 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 her then-boyfriend Balwani, who guaranteed a line of credit for the company.  Balwani joined 

the company and became its President and COO that same year. 

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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, Balwani 

and Holmes 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, Balwani 

and Holmes 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, copying Balwani, provided presentations and other written materials to 

Pharmacy A 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.   

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22. Balwani and 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).  Balwani also showed a Pharmacy A 

executive a prototype of one of Theranos’ analyzers, which he represented was being used 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, Balwani and Holmes told Pharmacy A that it 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. Balwani and Holmes also made similar statements to Grocery A.  They told 

Grocery A’s then-CEO that Theranos had successfully miniaturized the conventional laboratory.  

Balwani also was present when Holmes told Grocery A’s then-CEO 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 Balwani and Holmes that Theranos might need to obtain FDA approval for its 

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, 

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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 Balwani and 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, Balwani and 

Holmes 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, Balwani and 

Holmes 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. Balwani and Holmes 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, with Balwani’s knowledge, instructed Theranos employees to place both earlier 

generation TSPUs and miniLabs in a demonstration room where Theranos collected fingerstick 

samples from Pharmacy A 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.   

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31. Based on Balwani’s and Holmes’ presentations, Pharmacy A executives 

understood that the blood from their demonstration samples would be tested on Theranos’ 

miniLabs.  Balwani never told the executives that Theranos was actually testing some of their 

blood on modified third-party analyzers.   

32. 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. 

33. Balwani never told anyone at Pharmacy A that Theranos used third-party 

analyzers, including those that had been modified to test fingerstick blood.  He 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. 

34. Balwani and Holmes 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, Balwani and 

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

analyzers and that the TSPU was capable of performing 90 percent of the blood tests typically 

requested by doctors for their patients. 

35. Balwani also instructed Theranos’ laboratory employees to use code names to 

refer to third-party analyzers in its laboratory information systems, ensuring that even other 

Theranos employees would not know that Theranos was using third-party analyzers to conduct a 

portion of its patient testing.   

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 

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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, 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 

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 

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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. Balwani knew, or was reckless in not knowing, that the Fortune article contained 

misstatements about Theranos’ technology.  Nevertheless, Balwani discussed the Fortune article 

with investors but failed to correct the misstatements, instead commenting that the article 

provided a favorable boost to Theranos’ public image.   

42. Balwani did not correct the false or misleading statements in the articles that were 

published between 2013 and 2015.  In fact, in some instances, as Balwani knew, or was reckless 

in not knowing, Theranos provided to potential investors some of the articles containing untrue 

or misleading statements. 

E. Beginning in 2013, Balwani, Holmes, and Theranos Raised Over $700 
Million from Investors  

43. 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 Balwani and 

Holmes 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. 

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

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

misleading statements by Balwani and 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 

45. 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 

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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. 

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

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

investors would be taken by Balwani and Holmes 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 Balwani knew, 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.   

47. As Balwani knew, or was reckless in not knowing, 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.   

2. Balwani and Holmes Made a Series of False or Misleading 
Statements to Investors That Confirmed the Company’s Public 
Narrative 

48. Balwani and Holmes made statements to investors about the status of Theranos’ 

technology, historical contracts, commercial relationships, regulatory strategy, and financial 

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performance that were consistent with the public image they were promoting of Theranos as a 

company that was revolutionizing the diagnostics industry. 

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

49. Balwani and Holmes represented to investors that Theranos’ miniLab was 

capable of processing a full range of laboratory tests.  For instance, they 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.  In 2014, Balwani told an investor that Theranos had between 150 and 200 

fingerstick tests operating in its clinical lab.   

50. Theranos’ company overview presentation, which Balwani sent to a potential 

investor, also echoed these same statements.  Under a slide titled “Same Tests, A Whole New 

approach” and featuring a picture of a fingerprick and Theranos collection device, the 

presentation included the statement “Theranos runs any test available in central laboratories, and 

processes all sample types.” 

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

1,000 CPT codes, nor did Theranos ever offer between 150 and 200 fingerstick tests in its 

clinical lab.  In fact, as Balwani knew, or was reckless in not knowing, Theranos’ clinical lab 

used the TSPU only to perform 12 of the tests offered to patients.  

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

demonstrations, Balwani’s and Holmes’ 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, 

Holmes, with Balwani’s knowledge, instructed Theranos employees to remove certain tests from 

the order if Theranos was unable to perform those tests using a fingerstick collection.     

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53. 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, Balwani knew, or was reckless 

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

laboratory tests. 

54. Balwani’s statements about the capabilities of Theranos’ proprietary analyzer 

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

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

55. Balwani and 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, Balwani and Holmes told one investor that Theranos used its own analyzer equipment 

and did not buy analyzer equipment from third parties.  Balwani and Holmes explained to 

another investor that 100 percent of Theranos’ analyzers were manufactured in Theranos’ facility 

in Newark, California.   

56. The company overview presentation, which Balwani provided to at least one 

investor, also showed pictures of the TSPU and miniLab under the heading “Theranos Systems,” 

but excluded pictures of the third-party analyzers Theranos was using.   

57. Finally, the Fortune article – which Balwani received and discussed with an 

investor – stated that “Theranos [] does not buy any analyzers from third parties.” 

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

using its own TSPUs and miniLabs for patient testing.  

59. As Balwani 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.  

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

61. Balwani and Holmes also made false or misleading statements concerning 

Theranos’ historical business contracts with the DOD.  For instance, Balwani provided a 

presentation to a potential investor that listed the DOD as a “[k]ey deployment” for Theranos.   

62. Balwani and Holmes also made other statements that gave potential investors the 

impression that these historical relationships were meaningful.  Balwani and Holmes told 

multiple investors that Theranos’ technology had been deployed by the DOD in the battlefield 

and in Afghanistan.  They also told investors that the DOD had deployed Theranos’ miniLab on 

medevac helicopters.    

63. Balwani told one potential investor in late 2013 that 75 percent of Theranos’ 

current revenues were from the military.  Balwani told another potential investor in late 2014 that 

the company had long-dated contracts with the DOD that would provide future revenue to 

Theranos. 

64. Balwani 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 

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

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

65. Balwani’s statements about Theranos’ history with the DOD were important to 

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

proprietary analyzer.   

 

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

66. During meetings and in investor binders, Balwani and 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.  Notwithstanding that Balwani managed the Pharmacy A relationship, Balwani 

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 Balwani drafted for investors that were based on the assumption that 

Theranos would be rolling out to 800 or 900 stores by year-end 2015. 

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

million it raised during the relevant time period, Balwani 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.    

68. In August 2014, a senior Pharmacy A executive told Balwani that patient traffic 

and fingerstick draw percentages would need to increase in order for the executive to convince 

Pharmacy A management to roll out Theranos services to more stores.  At a partnership meeting 

later that month, which Balwani attended, Theranos and Pharmacy A discussed reducing the 

number of Pharmacy A stores that Theranos services would be rolled out to in 2015 from 500 

stores to 200. 

69. In December 2014, Balwani 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.  Balwani did not share any of these developments with 

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

into Pharmacy A as quickly as he represented it would. 

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COMPLAINT  
SEC V. BALWANI 
 

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SECURITIES AND EXCHANGE COMMISSION 

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70. Balwani also told potential 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. 

71. By August 2014, Grocery A and Theranos ceased to be in communication with 

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

to discuss Theranos’ relationship with Grocery A to investors.  Balwani knew, or was reckless in 

not knowing, that his statements about Theranos’ relationship with Grocery A were false or 

misleading. 

72. The statements made by Balwani 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, Balwani and Holmes 

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

delays in rolling out.  

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

73. When speaking to potential investors in late 2013 through 2015, Balwani and 

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.  

For instance, Balwani told a potential investor that approval was not required for the miniLab 

because Theranos was not selling its devices to other companies.   

74. Balwani and Holmes represented to business partners and investors that FDA 

approval was not necessary because they believed that Theranos’ tests were laboratory developed 

tests (“LDTs”), or tests developed and used inside a clinical laboratory, over which the FDA had 

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COMPLAINT  
SEC V. BALWANI 
 

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SECURITIES AND EXCHANGE COMMISSION 

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

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historically exercised its enforcement discretion to not require FDA clearance.  However, 

Balwani and Holmes 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.   

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

Balwani and Holmes that clearance or approval would be necessary for Theranos’ analyzer and 

tests.  In late 2013 and throughout 2014, FDA representatives met with Balwani and Holmes, 

and sent letters which Balwani received, 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, Balwani and Holmes agreed to submit all 

components of Theranos’ testing technology to the FDA for clearance or approval.  However, 

Balwani and Holmes continued to raise additional funds while telling potential investors 

Theranos was seeking FDA approval voluntarily.  But Balwani knew, or was reckless in not 

knowing, that FDA approval was necessary for Theranos’ analyzer and tests. 

76. Balwani’s 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.     

f. Balwani and 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  

77. Balwani drafted the financial information that Theranos included in the investor 

binders that projected that Theranos would generate over $100 million in revenues and break 

even in 2014.  These documents also represented that Theranos expected to generate 

approximately $1 billion in revenues in 2015.  Balwani told potential investors in October 2014 

that he had confidence in the year-end 2014 projections, in part because they were already more 

than nine months into the calendar year.   

Case 5:18-cv-01603   Document 1   Filed 03/14/18   Page 17 of 23



  

COMPLAINT  
SEC V. BALWANI 
 

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SECURITIES AND EXCHANGE COMMISSION 

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78. 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.   

79. Some of Theranos’ projections, which Balwani 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.  And Balwani knew that Theranos was not on track to break even in 

2014. 

80. Theranos’ actual financial performance bore no resemblance to the financial 

information Balwani 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. 

81. Balwani knew, or was reckless in not knowing, the 2014 revenue projection was 

baseless.  In October 2014, the same month he was providing year-end projected revenue figures 

between $120 and $140 million to potential investors, Balwani told Theranos’ potential insurers 

that Theranos was operating at an $8 million to $9 million monthly net loss. 

82. Balwani also knew, or was reckless in not knowing, that Theranos was using 

different projections with the third-party valuation firm that Theranos had retained to value the 

company’s common stock.  The valuation firm prepared a report dated October 2014, which 

Balwani received, that analyzed the value of Theranos’ common stock based on an assumption 

that it would recognize approximately $1 million in revenue for 2014 and $110 million for 2015. 

83. By late 2014, Balwani knew Theranos’ roll-outs in Pharmacy A and Grocery A 

stores were not going as planned.  Balwani also knew the company had made limited progress in 

advancing the other lines of business reflected in the projections.  Balwani 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.  

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COMPLAINT  
SEC V. BALWANI 
 

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SECURITIES AND EXCHANGE COMMISSION 

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

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Balwani thus also knew, or was reckless in not knowing, that the 2015 $1 billion revenue 

projections were unreasonable.   

84. 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. Balwani Left Theranos in 2016 

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

its manufacturing facility, Balwani left Theranos.   

86. In 2017, Balwani, Holmes, and Theranos settled a lawsuit with an investor that 

alleged they had committed securities fraud. 

FIRST CLAIM FOR RELIEF 

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

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

through 86. 

88. By engaging in the conduct described above, Defendant, 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. 

89. By reason of the foregoing, Defendant 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]. 

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COMPLAINT  
SEC V. BALWANI 
 

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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 

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

through 86. 

91. By engaging in the conduct described above, Defendant 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, 

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

(b) 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 

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

or would operate as a fraud or deceit upon purchasers. 

92. By reason of the foregoing, Defendant violated, and unless restrained and 

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

THIRD CLAIM FOR RELIEF 
Aiding and Abetting Violations of Section 10(b) of the Exchange Act and Rule 10b-5 

Thereunder 

93. The Commission realleges and incorporates by reference paragraphs 1 through 

86. 

94. By engaging in the conduct described above, Holmes or 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; 

Case 5:18-cv-01603   Document 1   Filed 03/14/18   Page 20 of 23COMPLAINT  
SEC V. BALWANI 
 

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SECURITIES AND EXCHANGE COMMISSION 

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

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(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. 

95. By engaging in the acts and conduct alleged above, Defendant knowingly or 

recklessly provided substantial assistance to Holmes’ or Theranos’ violations of 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], and 

thereby aided and abetted such violations, and unless restrained and enjoined, will continue to 

violate these provisions. 

 

FOURTH CLAIM FOR RELIEF 

Aiding and Abetting Violations of Section 17(a) of the Securities Act 

96. The Commission realleges and incorporates by reference paragraphs 1 through 

86. 

97. By engaging in the conduct described above, Holmes or 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, 

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

(b) 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 

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

or would operate as a fraud or deceit upon purchasers. 

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COMPLAINT  
SEC V. BALWANI 
 

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SECURITIES AND EXCHANGE COMMISSION 

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

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98. By engaging in the acts and conduct alleged above, Defendant knowingly or 

recklessly provided substantial assistance to Holmes’ or Theranos’ violations of Section 17(a) of 

the Securities Act [15 U.S.C. §§ 77q(a)], and thereby aided and abetted such violations, and 

unless restrained and enjoined, will continue to violate these provisions.   

PRAYER FOR RELIEF 

WHEREFORE, the Commission respectfully requests that this Court: 

I. 

Permanently enjoin Defendant 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 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)]. 

III. 

Prohibit Defendant 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)]. 

IV. 

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-01603   Document 1   Filed 03/14/18   Page 22 of 23



  

COMPLAINT  
SEC V. BALWANI 
 

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SECURITIES AND EXCHANGE COMMISSION 

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V. 

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 

 

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