For a short time, consumer health tech company Theranos was the darling of Silicon Valley. Its CEO, Elizabeth Holmes, was named one of TIME‘s most influential people of 2015. That same year, the company’s $9 billion valuation made Holmes, now 34, the richest self-made woman in the country.
After raising more than $700 million in total investment funding, it came to light that the company, which promised to analyze a variety of conditions with only a single drop of blood, wasn’t capable of what it had been telling press and investors. Today the SEC charged Theranos, Holmes, and former president Ramesh “Sunny” Balwani with “massive fraud.”
“Investors are entitled to nothing less than complete truth and candor from companies and their executives,” Steven Peikin, co-director of the SEC’s Enforcement Division, said in a release. “The charges against Theranos, Holmes, and Balwani make clear that there is no exemption from the anti-fraud provisions of the federal securities laws simply because a company is non-public, development-stage, or the subject of exuberant media attention.”
Theranos made a variety of “false and misleading statements” in its investor presentations, media interviews, and product demos. According to the SEC, the company’s product could only complete a small number of the tests it promised; the rest were done on traditional lab testing equipment.
As a part of its ruling, Holmes will have to pay a $500,000 penalty and will be barred from serving as an officer or director of a public company for 10 years. She also has to return the rest of her 18.9 million shares and relinquish her voting control of the company.
Holmes has quickly become a lesson for Silicon Valley. Jina Choi, Director of the SEC’s San Francisco Regional Office, warned that “Innovators who seek to revolutionize and disrupt an industry must tell investors the truth about what their technology can do today, not just what they hope it might do someday.”
For entrepreneurs—particularly female entrepreneurs—the ramifications have been more direct. Some, like Glassbreakers CEO Eileen Carey, were told they should dye their hair brown in order to distance herself from Theranos’ blonde Holmes.
H/T Business Insider