The Theranos fraud in brief: Theranos, a Silicon Valley blood-testing company founded by Elizabeth Holmes in 2003, raised more than $700 million from investors between late 2013 and 2015 [S1]. The SEC charged in March 2018 that Holmes and former president Ramesh “Sunny” Balwani misled investors about its technology and finances [S1]. In January 2022 a jury convicted Holmes of four counts of defrauding investors [S5]. She was sentenced to 135 months, later reduced to 123 [S3][S11]. Balwani was convicted on all 12 counts and sentenced to 155 months [S8][S13]. The convictions and $452 million in restitution were affirmed on appeal [S9].

Key facts

  • Company: Theranos, Inc., Palo Alto, founded 2003 by Elizabeth Holmes [S2]
  • Money raised: more than $700 million, late 2013 to 2015 [S1]
  • The claim vs the reality: its analyzer ran at most 12 tests, while it was presented as able to run far more [S2]
  • 2014 revenue: little more than $100,000, against projections of more than $100 million [S1][S2]
  • SEC settlement (Holmes): $500,000 penalty, 10-year officer and director bar, gave up voting control, neither admitting nor denying [S1]
  • Holmes verdict: guilty on 4 counts, 3 January 2022; sentence 135 months, cut to 123 months in March 2026 [S5][S3][S11]
  • Balwani verdict: guilty on all 12 counts, 7 July 2022; 155 months [S8][S13]
  • Appeal: convictions, sentences and $452 million restitution affirmed by the Ninth Circuit, 24 February 2025 [S9]

Case file: Theranos. Sources linked at the end as [S#]. SEC complaints are allegations; convictions are noted where they occurred. General information only, not financial advice.

The pitch

Holmes left university in her second year and founded Theranos in 2003 [S2]. The promise was a small analyzer that could run a wide range of lab tests from a few drops of blood from a finger. In 2010 Theranos signed contracts with a national pharmacy chain, later named by prosecutors as Walgreens, and with a national grocery chain [S2][S4]. It launched in a Palo Alto store in September 2013 [S2].

Red flag: a product investors can’t test. If the core technology is secret and no outsider has seen it work at scale, the valuation rests on management’s word.

The numbers

An auditor’s question is simple: what does the revenue line actually say?

The SEC alleged investors were given projections of more than $100 million in revenue and break-even in 2014, and about $1 billion in revenue in 2015 [S2]. Actual 2014 revenue was little more than $100,000. In the SEC’s words, “Theranos’ actual financial performance bore no resemblance to the financial information Holmes shared with investors” [S2].

The SEC also alleged that by late 2014 the retail rollout with the pharmacy chain had stalled, and that Holmes knew it, while investors were told to expect hundreds of stores [S2]. It alleged reports carrying pharmaceutical company logos were presented as validating the technology, though only one of three had been co-written with that company [S2].

Red flag: projections with no history behind them. Compare forecasts with actual revenue to date. A company forecasting $100 million that has booked $100,000 needs a very good explanation.

Control without oversight

Holmes held a class of shares carrying 100 votes each, giving her more than 99% of the voting power, according to the SEC [S2]. Investors who wanted to look closer had little leverage.

Unravelling

In October 2015 the Wall Street Journal published an investigation by John Carreyrou questioning the technology [S15]. A federal inspection of Theranos’s Newark, California lab ended in November 2015. In January 2016 the Centers for Medicare & Medicaid Services wrote that “the deficient practices of the laboratory pose immediate jeopardy to patient health and safety” [S10]. In 2016 Theranos left the retail lab business and its partners ended their deals [S2].

Charges and verdicts

On 14 March 2018 the SEC charged Holmes, Balwani and Theranos with “raising more than $700 million from investors through an elaborate, years-long fraud.” Holmes and Theranos settled; the SEC litigated against Balwani [S1]. Both were indicted in June 2018 [S3].

The jury convicted Holmes on four counts tied to investors and acquitted her on four counts tied to patients [S5][S6]. The FBI’s Craig Fair said: “Elizabeth Holmes chose fraud over business failure” [S5]. Balwani was tried separately and convicted on all counts [S8].

The Ninth Circuit affirmed both convictions in 2025, writing that “The grandiose achievements touted by Holmes and Balwani were half-truths and outright lies” [S9]. In March 2026 the trial court cut Holmes’s term to 123 months, noting the reduction “does not diminish the enormity of Holmes’s crimes” [S11]. The Supreme Court denied Balwani’s petition on 5 October 2026 [S12].

What an auditor takes from this

Theranos was a private company, and private companies get less scrutiny. The SEC’s message was that there is no exemption from the anti-fraud rules for them [S1]. The tests that would have caught it were ordinary: compare projections with actual revenue, confirm customer contracts with the customers, and ask to see the product working.

Further reading

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Sources

General information only, not financial advice. SEC allegations in the complaint were settled by Holmes without admitting or denying them.