The Theranos Story, ch. 27: investor ‘whales’ surface in class action lawsuit news

click to enlargeDon’t jump…you may land on one of them! In the Bottomless Well that is The Unicorn Losing Its Horn, The Transubstantiation of a $9 bn valuation to $9, to mix up a Whole Lotta Metaphors, the latest is that Certain Big Investors (‘whales’ in Vegas Lingo) and at least one minnow have lost their shirts, or maybe their sleeves and cuff links.

The first is via a class action lawsuit filed Monday against Theranos in San Francisco Federal Court by Hagens Berman Sobol Shapiro LLP, seeking to represent potentially hundreds of purchasers of Theranos shares from July 29, 2013, through October 5, 2016 .

According to the Wall Street Journal, the charges relate to “false and misleading claims about its operations and technology while soliciting money from investors.” Hagens Berman is representing Silicon Valley investment banker Robert Colman, who is the retired co-founder of Robertson Stephens & Co. (a legendary, now defunct, investment bank specializing in tech that blew up after the dot-com bust). He invested through a VC fund, Lucas Venture Group, who participated in Theranos’ Series G funding in late 2013. Lucas was invited to invest $15 million, and their principals had personal ties to Elizabeth Holmes, according to TechCrunch. The second plaintiff, Hilary Taubman-Dye, purchased Theranos shares at $19/share on SharesPost Inc., an online exchange for shares of private companies, in August 2015. Her claim is that she tried to cancel it after the Wall Street Journal exposé in October, but the purchase went through in December after Theranos, Elizabeth Holmes and an unidentified third party refused to buy back the shares as a secondary transaction. TechCrunch identified her as a “longtime technical recruiter who now works in investor relations for a TV production company” which means that her investment was likely no bag of shells for her. Their respective investments are not disclosed.

The second, according to a second article in the Journal, comes from the usual ‘sources familiar with the matter’ and papers filed by Theranos in Delaware and Arizona. These include some very atypical startup investors, such as Rupert Murdoch of News Corp. and family-controlled Cox Enterprises, at $100 million each in the 2014-15 round when shares were valued at $17/each, and an undisclosed amount by Riley Bechtel of Bechtel Group, who was later named to the board of directors. Other, more typical Silicon Valley investments date back to when Theranos was the more pedestrianly named Real Time Cures in 2004 and the shares were 15 cents each:

  • Oracle co-founder Larry Ellison
  • VCs from firms such as ATA Ventures and Draper Fisher Jurvetson. The latter’s Tim Draper and his daughter (!) have been quite critical of anyone, especially John Carreyrou of the WSJ, claiming that Ms Holmes was perhaps mistaken in her scientific and business practices. (Partner Jurvetson in reports has expressed a more ‘que será, será’ attitude.)
  • Sandbox Industries, which manages investments for Blue Cross and Blue Shield insurance plans and other clients. The Sandbox fund invested $1.5 million and the Blue Venture Fund invested $8.5 million in 2010.

Lost in the shuffle is supermarket chain Safeway’s investment of $30 million. They had planned clinics in more than 800 locations, but the deal was scuttled after The Troubles began. Unlike Walgreens Boots, who has already sued to claw back its $140 million, Safeway has not disclosed any legal action.

The irony of WSJ‘s uncovering Theranos’ fraudulent operations, which led to a huge loss for its owner, Mr Murdoch, is not lost on anyone. He has company; the publication totaled investment at $900 million.

If the WSJ articles are paywalled, search on ‘Theranos Sued for Alleged Fraud by Robertson Stephens Co-Founder Colman’ and ‘Big Names Take Hit on Theranos’. Also Engadget, Fortune and Vanity Fair, which has a jolly good time snarking away. ZeroHedge includes a choice morsel of the class action filing document which documents, in the US legal system, the basis for the lawsuit. Oh yes…see here for the 26 previous TTA chapters in this Continuing Saga. Will Ms Holmes one day be sitting on a stool on a stage, under a baby spot, crooning ‘My Way’? (“And now, the end is near, and I face the final curtain…”)

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