A federal jury recently found former COO of Theranos, Inc., Ramesh “Sunny” Balwani, guilty of fraud. According to DOJ’s press release, Balwani was convicted of two counts of conspiracy and ten counts of wire fraud. The charges stem from Balwani’s involvement with a multi-million-dollar scheme to defraud investors and patients about Theranos, Inc. In January, a different federal jury convicted Elizabeth Holmes, Theranos’ founder and Balwani’s business partner, of conspiracy and wire fraud charges for defrauding investors.
Theranos Marketed Itself as a Cutting-Edge Laboratory
Theranos, Inc. purported to be a cutting-edge healthcare and life sciences company. Elizabeth Holmes founded Theranos in 2003. In 2009, Balwani, Holmes’ then-boyfriend, joined the tech start-up. From 2009 to 2016, Balwani served in various roles at Theranos, including president, director, and chief operating officer.
According to the indictment against Holmes and Balwani, Theranos’s stated objective was to revolutionize medical testing through innovative methods for drawing and testing blood. Holmes and Balwani touted Theranos’ supposed “technological advances” while knowing the claims were false. Theranos also claimed it could run multiple tests using only tiny drops of blood instead of the typical vials. It further promised test results in hours, instead of days, with high accuracy. The federal jury, however, concluded that Balwani, and the previously convicted, Holmes, had defrauded investors and patients. Further, the jury found Balwani guilty of conspiring to commit wire fraud against Theranos investors and against patients who paid for Theranos’ blood testing services.
Two Brave Whistleblowers Shed Light on the Fraudulent Claims
Two whistleblowers, Tyler Schultz and Erika Cheung, brought Theranos’s fraud to light. Erika Cheung was working as a Theranos lab assistant. Cheung knew something was off when the quality controls repeatedly failed. The other whistleblower, Tyler Schultz, was a research engineer on the Theranos assay validation team. Schultz’s team was responsible for verifying the blood tests run on Theranos’s “Edison” machine. Shultz quickly noticed significant quality control failures and expressed his concerns internally. Subsequently, he faced such hostility that he resigned from the company. A short time later, Shultz blew the whistle on Theranos anonymously through Wall Street Journal reporter, John Carreyrou.
In addition to the criminal cases, in 2018, the SEC filed parallel securities fraud cases against Holmes and Balwani. Holmes agreed to settle with the SEC. The settlement requires Holmes to return millions of shares to the privately held company, pay a $500,000 fine, and not to serve as an officer or director of a public company for 10 years. To date, the SEC’s case against Balwani remains pending.
We Assist Whistleblowers in Revealing Fraud
Our lawyers have previously written and spoken about Theranos. In April, Erica Blachman Hitchings was a panelist at an event that included Theranos whistleblower Tyler Schultz. Last year, Linda Severin was a panelist at the New York American Inns of Court at a program called “Blowing the Whistle on ‘Fake It Til You Make It,'” which explored issues raised by the Theranos cases. In addition, Robert Thomas wrote about “takeaways” from the case following Elizaberth Holmes’ conviction earlier this year. One of his key points was that Silicon Valley’s “Fake it Til You Make It” ethos is a legally risky approach for startups in the healthcare space.
We have helped brave employees at other companies disclose wrongdoing. Under the False Claims Act, whistleblowers can receive 15-30% of the government’s recovery in a successful case. For example, this year, we announced a $234 million settlement of a False Claims Act case our whistleblower client, James Landolt, filed against Mallinckrodt. Under the SEC Whistleblower Program, whistleblowers who are represented by counsel can submit tips, complaints, and referrals to the SEC anonymously. Earlier this month, one of our clients received an award of over $17 million from the SEC.
The SEC also protects employees who formally report misconduct from retaliation. Tyler Schultz has said that he wishes he’d known about the SEC Whistleblower Program when he blew the whistle on Theranos.
There actually are a lot of protections for whistleblowers that I was completely unaware of when I was doing all this. The safest thing you can do is file a report to the SEC. You can’t be sued for something that you told the SEC. The government will protect you.
Contact Us to Report Fraud
We have extensive experience representing whistleblowers in False Claims Act and SEC matters. If you are considering submitting a tip, complaint, or referral to the SEC or are aware of other types of fraud, contact us for a free, confidential consultation.
