Theranos Gets Sued From Its Biggest Financial Backer – More Trouble Follows the Firm

Omar Sohail
Posted Oct 11, 2016
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After laying off 40 percent of its total workforce, Theranos is faced with a mammoth lawsuit and it’s not surprising that the origin of this lawsuit has come from a firm deeply associated with the health-technology and medical-laboratory-services company.

Theranos Allegedly Lied to Attract a Hefty $100 Million Investment

Partner Fund Management, a San Francisco-based hedge fund has filed the lawsuit in a Delaware Court of Chancery and according to a fund document and sources close to the matter, the firm is being sued for allegedly lying to its investors in order to attract that near-$100 million investment.

The letter was reviewed by The Wall Street Journal and given below are the details found:

“Through a series of lies, material misstatements, and omissions, the defendants engaged in securities fraud and other violations by fraudulently inducing PFM to invest and maintain its investment in the company.”

It’s also stated that Theranos founder Elizabeth Holmes and a former executive deceived the hedge fund by claiming it had developed proprietary technologies that worked, which was a sure-fire way to receive the investment necessary to expand operations. However, a spokesman hailing from Theranos states that Holmes is going to be fighting the suit:

“The suit is without merit and Theranos will fight it vigorously. The company is very appreciative of its strong investor base that understands and continues to support the company’s mission.”

According to Ms. Holmes, Theranos could accurately perform dozens of tests using a few drops of blood, a claim which supposedly drove the company’s valuable to an extraordinary $9 billion in a 2014 fundraising round. According to individuals close to the investigation, the company used its flagship technology for a small number of tests, relied on devices made by conventional manufacturers and released questionable test results to patients.

Theranos CEO Elizabeth Holmes Will Not Be Allowed To Operate A Lab For 2 Years – Us Regulators Bring Down The Hammer

While the company has said that it is cooperating with the investigation agencies and regulators, the future could be looking bleak for the company. One regulator has barred Ms. Holmes from the lab industry, pending the company’s appeal. Only last week, the company abruptly shut down its remaining testing operations in Arizona.

In a blog post published on the company’s website, Elizabeth Holmes said that the company was going to be shifting its focus away from blood-testing to developing and making new commercial technology. This tech could be used to accomplish its long-stated aim of making blood tests cheaper and more accessible.

A person close to the matter has said that Partner Fund Management is seeking damages as well as the costs associated with the lawsuit. The hedge-fund poured in $96.1 million in Theranos in 2014 and manages more than $4 billion, which mostly comprises up of publicly traded securities and making investments in firms such as Theranos. Partner also alleges that Theranos overstated the scope of its submissions for Food and Drug Administration approval and its ability to meet the obligations it had agreed to in partnerships.

Furthermore, the hedge fund’s suit also claims that Ms. Holmes, Mr. Balwani and Theranos engaged in securities fraud, negligent misrepresentation, and violations of the Delaware deceptive trade practices act.

Will the company be able to climb out of the hole that it has dug so deep for itself? Tell us your thoughts right away.

 

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