Tuesday, October 19, 2021

Fired exec fights back at Theranos, accusing Elizabeth Holmes of fraud

The venture capital firm behind Theranos put the blame on company founder Elizabeth Holmes when a healthcare company sued it for misleading investors over how often patients needed blood tests.

And according to lawyers for Holmes, her two adopted children were victims.

Theranos Inc. sued the venture capital firm General Catalyst on Friday, blaming it for Theranos’ decline following numerous lawsuits and a government investigation that found it had misled investors.

General Catalyst, in turn, is blaming Holmes. In a statement, it said Theranos, Holmes and her son, Jesse, “Deferred to” her.

“No person is obliged to willfully defraud investors or any other people,” General Catalyst said in a statement. “And the role of the Chief Executive at a public company is to set the strategy, vision and tone, and the role of the CFO, COO and Executive committee is to carry out such a strategy, vision and tone.”

Theranos and General Catalyst had a tense relationship for years. The two companies split up, and she eventually took the reins of Theranos from its founder, Dave King. Both women are currently listed as Theranos’ top executives.

The rupture came after Theranos ran into increasing criticism from federal regulators.

The company, which claimed to have invented a technology that enabled accurate blood testing in devices the size of USB drives, shut down operations and recalled its devices due to safety issues with the use of certain chemistries. In 2015, Theranos was sued by the Justice Department for fraud.

In one lawsuit, a Theranos device showed up that could detect HIV and hepatitis without a finger prick. The company ran advertising campaigns and ballyhooed the results.

But, like many other medical devices, it didn’t actually work very well and didn’t require the user to draw blood. The Justice Department’s lawsuit described it as “unable to reliably detect the presence of any infectious disease even when compared to commercially available blood testing devices, particularly blood tests that have gone through rigorous FDA approval and lab testing protocols.”

Holmes was accused of using undisclosed incentives to sell the company to the investors to avoid any legal liabilities. It is in this context that the attorneys for Holmes argue Theranos “did not operate in good faith or exercise good faith business practices,” including misleading Theranos investors about its performance.

The Justice Department has accused Holmes of fraudulently marketing the company as a revolutionary medical device and hasn’t yet filed any charges.

Even when Theranos’ relationship with General Catalyst was at its worst, it was always “the best partner we had,” when Theranos needed an infusion of cash, Holmes said in a deposition taken after the company’s collapse.

The attorneys for Holmes say it was Holmes who was at the helm of Theranos when it purchased blood-testing machine Exosome Diagnostics and thousands of Theranos “miniLab” devices that were, according to the indictment of Holmes, never approved by the Food and Drug Administration.

Theranos lawyers filed papers alleging that Holmes, as a sole owner, was responsible for the company’s destiny. Holmes stands “at the pinnacle of philanthropy,” the papers say, and “helped pave the way for the advent of artificial intelligence, robotics, and the [fintech] revolution.”

She also “dedicated a great deal of time to adopt disabled and foster children,” according to court documents.

She was also “part of the broader community of ‘wellness’ companies that include companies like the Microsoft HealthVault and Apple Health, where the enterprise model with its focus on artificial intelligence, robotics, and the mission of human wellbeing, is increasingly focused on becoming more inclusive, inclusive, and experiential.”

There’s no indication in the filing of how Theranos allegedly misled investors. Those documents state the general partner’s alleged role in the event of a “specified volatility or severe downturn in the general partner’s public market investment portfolio.”

According to the court filings, Holmes “was the founder and CEO of Theranos.” And “that confidence and trust in Elizabeth was valuable to (Theranos) as a corporate entity.”

Holmes could not be reached for comment.

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