How Theranos's Woes Just Got Even Worse

News of probes by the U.S. Attorney's office and SEC followed warnings that the company could lose its laboratory certification and two top execs.

Nancy Crotti

Within hours of Theranos CEO Elizabeth Holmes telling TV viewers that she was "devastated" by her fledgling company's woes, more blows fell.

Reports surfaced that the rapid-blood-testing company is under a federal criminal investigation into whether it misled investors and the government about its technology and operations, according to the Wall Street Journal. The U.S. Attorney's Office for the Northern District of California and the SEC are working separate investigations into Theranos, seeking to clarify whether the onetime wunderkind company deceived investors when it was raising money, according to Bloomberg. Holmes contributed more than half of the seed money to launch the company in 2014, WSJ said.

Unidentified sources told the newspaper that Walgreens Boots Alliance and the New York State Department of Health had received subpoenas demanding documents and testimony about how Theranos represented itself to them. Even though the Palo Alto, CA, company is privately held, the SEC can investigate its dealings with investors.

Federal officials began requesting information informally about Theranos in January and February, people familiar with the matter told WSJ. A federal court in San Francisco issued grand-jury subpoenas in March, the newspaper reported, adding that FBI and the U.S. Postal Service are  assisting in the investigation.

In a letter dated March 18 and obtained by the Wall Street Journal, the Center for Medicare and Medicaid Services cited Theranos for continued failure to address issues at the plant following a CMS inspection in November.

CMS had already said in January that, it might fine the firm, or suspend or revoke the company's certification for testing human samples. The agency is now threatening fines and revocation in addition to shutting Holmes and Theranos president, Sunny Balwani, out of the business.

The Silicon Valley startup became well-known for its blood-testing technology, which promised to perform multiple diagnostic tests with a single drop of blood. Following previously released CMS reports stating that the company may be putting patients in danger and that its test results are erratic, the company has been on the defensive publicly.

Theranos beefed up its scientific and medical advisory board with eight medical and lab testing experts, and Holmes went on TV.

The company founder told NBC's Maria Shriver that Theranos would survive the turmoil. "It's a change that needs to happen in the world," she said of the company's goal to provide easily accessible finger-prick blood tests.

Nancy Crotti is a contributor to Qmed and MPMN.

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