Criminal Charges Filed Against Theranos' Elizabeth Holmes, Sunny Balwani

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Elizabeth Holmes in 2015. She and former Theranos COO Ramesh "Sunny" Balwani have been indicted on fraud charges. (Clinton Global Initiative)

The other shoe dropped for Elizabeth Holmes today -- the criminal one.

A federal grand jury has indicted Holmes on criminal charges of allegedly defrauding investors, doctors and patients as the head of the once-heralded Bay Area blood-testing startup Theranos.

The U.S. Attorney's Office for the Northern District of California said late Friday that Holmes and her former chief operating officer, Ramesh "Sunny" Balwani, have been charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud. They face a maximum of 20 years in prison, the U.S. Attorney's Office said.

Both Holmes and Balwani surrendered to the FBI and were arraigned in U.S. District Court in San Jose, CNBC reports. They were released on $500,000 bond each and ordered to surrender their passports at the arraignment, which was attended by Holmes' parents, the network reported.

The action comes three months after the Securities and Exchange Commission entered into a settlement with Holmes and Theranos over charges that the company perpetrated a "massive" and "years-long" fraud by exaggerating or making false statements to investors about the company's technology and financial performance. Balwani, 53, did not settle in that case.


Holmes, 34, is a Stanford University dropout who was once billed as the next Steve Jobs.

She claimed that Theranos could perform dozens of blood tests from a few finger-sticks of blood, an advance that would have disrupted the diagnostics industry now dominated by a handful of giant companies. But an investigation by Wall Street Journal reporter John Carreyrou exposed Theranos' claims as untrue, and its testing results as inaccurate. The company was forced to invalidate hundreds of thousands of blood tests performed on patients, and it eventually exited the consumer blood-testing business after the Centers for Medicare & Medicaid Services found deficiencies at the company's laboratory that the agency deemed life-threatening.

Acting U.S. Attorney Alex G. Tse portrayed the indictments against Holmes and Balwani as a warning against Silicon Valley companies who use deceit in their business dealings.

“Investors large and small from around the world are attracted to Silicon Valley by its track record, its talent, and its promise," Tse said.  "They are also attracted by the fact that behind the innovation and entrepreneurship are rules of law that require honesty, fair play, and transparency.  This office, along with our other law enforcement partners in the Bay Area, will vigorously investigate and prosecute those who do not play by the rules that make Silicon Valley work."

It's unclear how many people still work at Theranos, which has had to lay off the vast majority of its workers in the face of mounting scandals. But the company remained feisty as recently as three weeks ago, when it issued a rebuttal to a "60 Minutes" story timed to coincide with the release of Carreyrou's book, which depicted rampant unethical behavior by Holmes and Balwani. (Read the prologue here. It's a doozy.)

Peter Henning, a former senior attorney in the enforcement division of the SEC, said Theranos' statement came close to breaking a stipulation in its agreement with the SEC that prohibits it from denying the agency's allegations.

Vindication for Carreyrou

One aspect of the Theranos story is how one reporter, aided by whistleblowers, took on a Silicon Valley darling whose founder was well on her way to becoming a tech icon.

After Carreyrou's first stories exposing Theranos, he became Public Enemy No. 1 at the company, as it fought back by depicting his reporting as riddled with inaccuracies. (That particular press release, remarkably, is still available on the Theranos website.) Notoriously, at one point, employees who had gathered for a companywide meeting chanted "F*** you, Carreyrou" to voice their displeasure with him.

Carreyrou recently appeared on KQED's Forum radio program, and I asked him today how he felt about the indictments of Holmes and Balwani.

"It’s vindicating," he wrote in an email. "I put three-and-a-half years of my life into covering this story."

The Associated Press contributed to this post.