The latest reveal in the Theranos Saga took place in busy Delaware Chancery Court in a lawsuit brought by investor Partner Fund Management (PFM) LP and two other associated funds, which invested over $96 million in 2014. The unsealed documents, part of the follow-up to a lawsuit originally filed in October 2016 [Ch. 21] and another filed this month to block the equity offer to investors, contain depositions from 22 former employees and (hold the presses) directors. The (paywalled) Wall Street Journal article revealed that Theranos bought commercial blood testing lab equipment from reputable companies including Siemens, modified them to take the miniature samples that Theranos collected, used them to conduct both customer testing and from the filing, “fake ‘demonstrations tests’ for prospective investors and business partners”. Theranos used a shell company, Protegic Procurement Company, to make the purchases. Former director Adm. Gary Roughead, USN (Ret.), was quoted as being unaware of the fact that there were “extensive commercial analyzers in use.”
Now it is not uncommon for competitors’ equipment to be used for reference purposes and testing, especially when the company still is in process for their regulatory approvals. However, the lawsuit claims that customer tests were run on these labs, and not for a limited time as Theranos claims. The demonstration test claims are even more damning as they show fraudulent intent to investors.
The other part of the PFM lawsuit alleges that Theranos investors, including them, were pressured to not sue and take the additional equity deal [Ch. 38] by an attorney representing Theranos, who suggested that the alternative was to seek Chapter 11 bankruptcy protection. “Theranos officials engineered the share offer in a way that would make it impossible for the funds to obtain “any recovery” as part of its bankruptcy filing.” The PFM filing to block was successful. On April 11, Theranos was stopped from going forward with the share-exchange plan, with that hearing scheduled for June 26, not ideal for a company which is buying time before the money runs out. Bloomberg
The ‘cherry on the fraud cake’ is Theranos’ wildly inflated projection of a $1 billion gross profit in 2014. Theranos, of course, states that “The suit is without merit, the assertions are baseless, and the plaintiff is engaging in revisionist history.” Is ‘fake news’ the next claim? Ars Technica, TechCrunch, Fortune, Engadget.
Rest assured that there are many other chapters to come, as the lawsuits continue, including one for $140 million by Walgreens Boots, and the Colman/Taubman-Dye suit in California. Our Theranos and related articles are indexed here.