- REUTERS/Mike Blake
- Elizabeth Holmes has been charged with engaging in a “massive fraud” by the Securities and Exchange Commission.
- She won’t be going to jail over this, because the SEC doesn’t have that authority. Instead, it brings civil or administrative cases.
- The Department of Justice is also investigating the matter – but that’s a separate case.
Elizabeth Holmes, the founder of blood testing startup Theranos, has been charged with engaging in a “massive fraud” by the Securities and Exchange Commission. The SEC says she and the company’s president raised more than $700 million using an “elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance.” No, she won’t be going to jail over this. In fact, even though she faces some serious penalties over the charge – she’s losing control of the company and won’t profit if it is sold – she also doesn’t have to admit wrongdoing as part of a settlement with regulators. To recap, Theranos was once a Silicon Valley favorite because of its promise that its technology could allow for a wide variety of blood tests with just a droplet of blood. That all began to fall apart when the Wall Street Journal raised serious questions about the accuracy of the tests, prompting a government agency to shut down one of its labs. The SEC investigation has been underway since 2016, and it’s not the only one. The Department of Justice is also investigating the matter – but that’s a separate case. That one, in theory, could lead to criminal charges. This is pretty standard practice with the SEC. The regulator explains on its website that, while it works with law enforcement agencies, it’s investigations lead to civil or administrative actions. It routinely penalizes brokers and traders by banning them from working in the industry or accepting outside money. One of the highest-profile cases the SEC brought against a biotech CEO was with Sam Waksal, the CEO of Imclone, who was accused of insider trading. He also didn’t admit or deny wrongdoing. Waksal did serve jail time but that was on charges including obstruction of justice and perjury. Under the agreement, Samuel Waksal will pay a $3 million penalty, and his father will return $2 million in profits. The two men neither admitted nor denied any allegations.
Here’s are some of the things Holmes has agreed to do to settle with the SEC.
- She’ll give up financial and voting control of the company.
- Holmes has to pay a $500,000 fine.
- She cannot be a director or officer of a publicly traded company for 10 years. Theranos is a privately-held company, which means she can continue to be CEO.
- She has to return 18.9 million shares of Theranos stock.
- She will give up her majority voting control of the company by converting her shares to Class A Common shares from Class B Common shares.