Key Investor Sues Theranos on Allegations of Fraud

Theranos

The problems currently facing Theranos are showing no sign of abating soon after a major investor filed a lawsuit against the American health technology company and its founder for lying to investors to raise funds.

Partner Fund Management, one of Theranos’ biggest investors, on Monday filed a lawsuit against the medical-testing firm in Delaware Court of Chancery, accusing it of lying about performance to raise nearly $100 million in investment.

“Theranos and its principals knowingly and repeatedly lied that they had developed proprietary technologies that worked, were on the cusp of receiving all necessary regulatory clearances and approvals, and concealed the truth about the commercial viability of their technologies and methods,” the San Francisco-based hedge fund said in a statement.

Partner Fund is seeking in the suit filed under seal to have a stock-purchase agreement with Theranos to be overturned.

The suit was the first of several expected from investors following recent scandals surrounding the activities of the health technology company, the capability of whose technology has come under intense scrutiny. The Palo Alto, California-based firm is reportedly being investigated at both federal and state levels.

In a statement released Monday, Theranos dismissed the lawsuit filed against it by Partner Fund, saying the complaint lacked merit. It stated readiness to fight the complaint “vigorously.” The company noted that most the statements credited to it in the suit were made after the hedge fund had already made its investment and, as such, could not have served as the main basis for investment.

Founder Elizabeth Holmes had claimed that her company was able to perform dozens of tests and produce accurate results using just a few drops of blood, unlike what rival companies offered. This contributed to boosting Theranos’ valuation to about $9 billion in 2014 and making investors put around $800 million into the firm.

Partner Fund invested $96.1 million in Theranos in February, according to Bloomberg, which cited an anonymous person familiar with the matter.

A report by the Wall Street Journal last October raised questions about the accuracy and reliability of the health technology firm. Investigation by the newspaper revealed that the company only used its own in-house technology for only a little portion of tests carried out, while the most were done using equipment made by traditional manufacturers.

Theranos and Holmes were sanctioned by U.S. regulators in July following discovery of systematic shortcomings in laboratory testing, putting patients’ health at risk. A two-year ban from owning or operating a laboratory was also considered against the company’s founder.

Theranos, which has already voided thousands of test results, currently has an appeal pending against the sanctions imposed on it.

Last week, Holmes announced the closure of the company’s blood-testing labs and wellness centers. The decision led to the dismissal of 340 employees.

The Theranos founder has revealed that the firm would shift its attention from blood-testing to developing and selling products to external laboratories. She said the company would now give its “undivided attention” to commercializing its miniLab tool said to be capable of producing more accurate results from a few drops of blood.

Bloomberg reports that another set of investors filed a lawsuit against Theranos in the same Delaware court on Tuesday.

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