Case 5:18-cv-01603 Document 1 Filed 03/14/18 Page 1 of 23 1 JINA L. CHOI (NY Bar No. 2699718) ERIN E. SCHNEIDER (Cal. Bar No. 216114) 2 schneidere@sec.gov MONIQUE C. WINKLER (Cal. Bar No. 213031) 3 winklerm@sec.gov JASON M. HABERMEYER (Cal. Bar No. 226607) 4 habermeyerj@sec.gov MARC D. KATZ (Cal. Bar No. 189534) 5 katzma@sec.gov JESSICA W. CHAN (Cal. Bar No. 247669) 6 chanjes@sec.gov RAHUL KOLHATKAR (Cal. Bar No. 261781) 7 kolhatkarr@sec.gov 8 Attorneys for Plaintiff SECURITIES AND EXCHANGE COMMISSION 9 44 Montgomery Street, Suite 2800 San Francisco, CA 94104 10 (415) 705-2500 11 UNITED STATES DISTRICT COURT 12 NORTHERN DISTRICT OF CALIFORNIA 13 SAN JOSE DIVISION 14 15 SECURITIES AND EXCHANGE COMMISSION, 16 17 18 Case No. Plaintiff, COMPLAINT vs. RAMESH “SUNNY” BALWANI, 19 Defendant. 20 21 22 Plaintiff Securities and Exchange Commission (the “Commission”) alleges: SUMMARY OF THE ACTION 23 24 1. This case involves the fraudulent offer and sale of securities by Theranos, Inc. 25 (“Theranos”), a California company that aimed to revolutionize the diagnostics industry, its 26 Chairman and Chief Executive Officer Elizabeth Holmes, and its former President and Chief 27 Operating Officer, Ramesh “Sunny” Balwani. The Commission has filed a separate action 28 against Holmes and Theranos. COMPLAINT SEC V. BALWANI -1- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01603 Document 1 Filed 03/14/18 Page 2 of 23 1 2. Balwani, Holmes, and Theranos raised more than $700 million from late 2013 to 2 2015 while deceiving investors by making it appear as if Theranos had successfully developed a 3 commercially-ready portable blood analyzer that could perform a full range of laboratory tests 4 from a small sample of blood. They deceived investors by, among other things, making false 5 and misleading statements to the media, hosting misleading technology demonstrations, and 6 overstating the extent of Theranos’ relationships with commercial partners and government 7 entities, to whom they had also made misrepresentations. 8 9 3. Balwani, Holmes, and Theranos also made false or misleading statements to investors about many aspects of Theranos’ business, including the capabilities of its proprietary 10 analyzers, its commercial relationships, its relationship with the Department of Defense 11 (“DOD”), its regulatory status with the U.S. Food and Drug Administration (“FDA”), and its 12 financial condition. These statements were made with the intent to deceive or with reckless 13 disregard for the truth. 14 4. Investors believed, based on these representations, that Theranos had successfully 15 developed a proprietary analyzer that was capable of conducting a comprehensive set of blood 16 tests from a few drops of blood from a finger. From Balwani’s and Holmes’ representations, 17 investors understood that Theranos offered a suite of technologies to (1) collect and transport a 18 fingerstick sample of blood, (2) place the sample on a special cartridge which could be inserted 19 into (3) Theranos’ proprietary analyzer, which would generate the results that Theranos could 20 transmit to the patient or care provider. According to Balwani and Holmes, Theranos’ 21 technology could provide blood testing that was faster, cheaper, and more accurate than existing 22 blood testing laboratories, all in one analyzer that could be used outside traditional laboratory 23 settings. 24 5. At all times, however, Balwani, Holmes, and Theranos were aware that, in its 25 clinical laboratory, Theranos’ proprietary analyzer performed only approximately 12 tests of the 26 over 200 tests on Theranos’ published patient testing menu, and Theranos used third-party 27 28 COMPLAINT SEC V. BALWANI -2- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01603 Document 1 Filed 03/14/18 Page 3 of 23 1 commercially available analyzers, some of which Theranos had modified to analyze fingerstick 2 samples, to process the remainder of its patient tests. 3 6. In this action, the Commission seeks an order enjoining Balwani from future 4 violations of the securities laws, requiring Balwani to pay a civil monetary penalty, prohibiting 5 him from acting as an officer or director of any publicly-listed company, and providing other 6 appropriate relief. 7 8 9 JURISDICTION AND VENUE 7. The Commission brings this action pursuant to Sections 20(b), 20(d), and 22(a) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. §§ 77t(b), 77t(d), and 77v(a)] and 10 Sections 21(d), 21(e), and 27 of the Securities Exchange Act of 1934 (“Exchange Act”) 11 [15 U.S.C. §§ 78u(d), 78u(e), and 78aa]. 12 8. This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d)(1) 13 and 22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d)(1), and 77v(a)] and Sections 21(d), 14 21(e) and 27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e) and 78aa]. 15 9. Defendant, directly or indirectly, made use of the means and instrumentalities of 16 interstate commerce or of the mails in connection with the acts, transactions, practices, and 17 courses of business alleged in this complaint. 18 10. Venue is proper in this District pursuant to Section 22(a) of the Securities Act 19 [15 U.S.C. § 77v(a)] and Section 27(a) of the Exchange Act [15 U.S.C. § 78aa(a)]. Balwani 20 resides in the District. In addition, acts, transactions, practices, and courses of business that form 21 the basis for the violations alleged in this complaint occurred in this District. Defendant met 22 with and solicited prospective Theranos investors in this District, and the relevant offers or sales 23 of securities took place in this District. 24 11. Under Civil Local Rule 3-2(d), this civil action should be assigned to the San 25 Jose Division, because a substantial part of the events or omissions which give rise to the claims 26 alleged herein occurred in Santa Clara County. 27 28 COMPLAINT SEC V. BALWANI -3- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01603 Document 1 Filed 03/14/18 Page 4 of 23 1 2 DEFENDANT 12. Ramesh “Sunny” Balwani, age 52, of Atherton, California, was the President and 3 Chief Operating Officer of Theranos, Inc. from September 2009 to May 2016. From 2013 4 through 2015 (the “relevant time period”), Balwani received a salary of between approximately 5 $99,000 and $200,000. 6 7 8 9 OTHER RELEVANT INDIVIDUAL AND ENTITY 13. Elizabeth Holmes, age 34, of Los Altos Hills, California, is the Chief Executive Officer (“CEO”) and Chairman of the Board of Theranos, Inc. 14. Theranos, Inc. is a Delaware corporation, with its principal place of business in 10 Newark, California. During the relevant time period, Theranos’ principal place of business was 11 in Palo Alto, California and its sole managing executives were Holmes and Balwani. 12 FACTUAL ALLEGATIONS 13 A. Background 14 15. Elizabeth Holmes founded Theranos, a diagnostics company, in 2003 after 15 leaving college during her second year. Holmes had a vision of developing new diagnostic 16 technologies, with a focus on small sample testing and easier access to testing results for 17 prevention and earlier diagnosis. 18 16. For the first five years of its existence, before Balwani joined Theranos, Theranos 19 focused its efforts on developing its proprietary analyzer, the Theranos Sample Processing Unit, 20 or “TSPU,” to analyze blood taken from a fingerstick and on assisting pharmaceutical companies 21 with their clinical trials. The earliest generation TSPU was a small point-of-care device that was 22 capable of performing only a few tests. A point-of-care device can be used to obtain results near 23 where patients provide samples, such as medical offices. 24 17. In 2009, as Theranos was on the verge of running out of money, Holmes turned 25 to her then-boyfriend Balwani, who guaranteed a line of credit for the company. Balwani joined 26 the company and became its President and COO that same year. 27 28 COMPLAINT SEC V. BALWANI -4- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01603 Document 1 Filed 03/14/18 Page 5 of 23 1 18. From the time that Balwani joined Theranos until his departure in 2016, Theranos 2 had no other senior managing executives besides Holmes and Balwani. Holmes generally 3 focused on device innovation, board interaction, and strategic relationships, while Balwani 4 concentrated on developing software for Theranos’ technology and managing personnel and 5 operations. Still, they collaborated closely with each other and made decisions about the 6 company together. 7 B. In 2010, Theranos Decided to Pursue the Retail Clinical Laboratory Space Even Though Its Analyzer Was Not Commercially Ready 19. Theranos spent years in research and development to develop an earlier- 8 9 10 generation TSPU. The earlier-generation TSPU was designed to perform only one method of 11 testing—immunochemistries—and could process only one sample at a time. In 2009, Balwani 12 and Holmes turned the company’s efforts towards developing a new version of the TSPU, which 13 they hoped would one day be able to perform a broader range of laboratory testing by 14 incorporating additional methods of testing. They later referred to this version of the TSPU as 15 the miniLab. 16 20. In early 2010, even though the miniLab was not commercially ready, Balwani 17 and Holmes decided to focus on the retail clinical laboratory market by pursuing contracts with a 18 large national pharmacy chain (“Pharmacy A”) and a large national grocery chain (“Grocery 19 A”). Their vision was to place miniLabs at designated “Patient Service Centers” in retail stores 20 so that patients could get their diagnostic tests performed while shopping. 21 21. In connection with discussions about a potential partnership with Pharmacy A, 22 Holmes approved and, copying Balwani, provided presentations and other written materials to 23 Pharmacy A executives representing that Theranos had the ability to conduct a broad range of 24 tests on its proprietary analyzer, including general chemistry tests, wellness tests, and some 25 predictive and diagnostic health tests (which involved methods beyond immunochemistries). 26 These materials stated that Theranos would be ready to begin blood testing on its proprietary 27 analyzer at Pharmacy A stores by the fourth quarter of 2010. 28 COMPLAINT SEC V. BALWANI -5- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01603 Document 1 Filed 03/14/18 Page 6 of 23 1 22. Balwani and Holmes also told Pharmacy A executives that Theranos could 2 conduct hundreds of blood tests through fingerstick (or the puncture of a finger), that its testing 3 could be conducted in a rapid timeframe (in less than one hour), and that it could be offered for a 4 reasonable price (much less than Theranos’ competitors). Balwani also showed a Pharmacy A 5 executive a prototype of one of Theranos’ analyzers, which he represented was being used on 6 military helicopters. 7 23. Based on these representations, Pharmacy A executives thought that the miniLab 8 was capable of performing, in a clinical lab setting, a wide range of the tests offered by 9 traditional laboratories. For example, Balwani and Holmes told Pharmacy A that it could, on its 10 analyzer – the miniLab – perform approximately 90 percent of the tests that a large, traditional 11 central lab could perform. In July 2010, Pharmacy A entered into a contract with Theranos to 12 roll out Theranos’ service to Pharmacy A stores. 13 24. Balwani and Holmes also made similar statements to Grocery A. They told 14 Grocery A’s then-CEO that Theranos had successfully miniaturized the conventional laboratory. 15 Balwani also was present when Holmes told Grocery A’s then-CEO that Theranos’ analyzers 16 were being deployed in the battlefield. Based on these representations, in September 2010, 17 Grocery A contracted with Theranos to offer Theranos patient testing in Grocery A stores. 18 C. In 2013, On the Eve of the Pharmacy A Launch, Theranos Began Modifying Commercially-Available Analyzers and Running Misleading Demonstrations 25. Between 2010 and 2013, Theranos continued to work on developing its miniLab 19 20 21 22 with an eye towards launching its services in Pharmacy A and Grocery A stores. 26. In 2011, Pharmacy A executives raised concerns it had with Theranos’ regulatory 23 strategy, and told Balwani and Holmes that Theranos might need to obtain FDA approval for its 24 miniLab and certify each of its stores as a laboratory in order for the analyzers to be used in 25 Pharmacy A stores. 26 27. 27 Based on these concerns, in 2012, Theranos and Pharmacy A agreed to modify their original contract to reflect a roll-out of Theranos’ service in two phases. In the first phase, 28 COMPLAINT SEC V. BALWANI -6- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01603 Document 1 Filed 03/14/18 Page 7 of 23 1 before Theranos received regulatory approvals for its analyzers, patient samples would be 2 transported from Pharmacy A stores to centralized laboratories operated by Theranos and tested 3 on Theranos’ miniLab there. Theranos opened and operated two centralized laboratories to test 4 patient samples collected from Pharmacy A stores. In the second phase, after Theranos had 5 received the necessary regulatory approvals, Theranos’ retail offering at Pharmacy A would be 6 performed on miniLabs placed in Pharmacy A stores. 7 28. But as September 2013 approached – the date for the launch of the first phase of 8 the roll out of Theranos services in Pharmacy A stores – it became clear to Balwani and Holmes 9 that the miniLab would not be ready. At the time, Theranos had not fully integrated other testing 10 methods into the miniLab and had not completed the scientific verification steps needed to make 11 any of its blood tests available on the miniLab for patient testing. As a result, Balwani and 12 Holmes made the decision to use Theranos’ earlier-generation TSPUs, which could only be used 13 to perform immunochemistries, for patient testing. 14 29. In order to offer a broader range of fingerstick tests at Pharmacy A, Balwani and 15 Holmes asked Theranos’ engineers in July 2013 to modify third-party analyzers from 16 commercial manufacturers so they could analyze fingerstick samples. Theranos scientists spent 17 the two months leading up to the retail launch preparing as many fingerstick tests as possible on 18 the third-party analyzers, which could typically process only venous samples. 19 30. Balwani and Holmes never told Pharmacy A and Grocery A about Theranos’ 20 technological challenges. For instance, in July and August 2013, Theranos coordinated 21 technology demonstrations for various Pharmacy A executives in advance of the retail launch. 22 Holmes, with Balwani’s knowledge, instructed Theranos employees to place both earlier 23 generation TSPUs and miniLabs in a demonstration room where Theranos collected fingerstick 24 samples from Pharmacy A executives. Instead of using these machines to process the tests on 25 these samples, and unbeknownst to the Pharmacy A executives, Theranos used the modified 26 third-party machines to process a portion of the tests. 27 28 COMPLAINT SEC V. BALWANI -7- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01603 Document 1 Filed 03/14/18 Page 8 of 23 1 31. Based on Balwani’s and Holmes’ presentations, Pharmacy A executives 2 understood that the blood from their demonstration samples would be tested on Theranos’ 3 miniLabs. Balwani never told the executives that Theranos was actually testing some of their 4 blood on modified third-party analyzers. 5 32. At the end of 2013, Pharmacy A agreed to accelerate a portion of a $100 million 6 “innovation fee” to help Theranos broaden its roll-out of services to Pharmacy A stores. 7 Unbeknownst to Pharmacy A, Theranos was scaling its retail offering by relying on third-party 8 analyzers. 9 33. Balwani never told anyone at Pharmacy A that Theranos used third-party 10 analyzers, including those that had been modified to test fingerstick blood. He also never told 11 Pharmacy A that Theranos was using third-party analyzers to perform the majority of its testing. 12 If Pharmacy A had known that Theranos was using third-party analyzers for a majority of its 13 patient testing, it would not have accelerated the payment of the innovation fee. 14 34. Balwani and Holmes also denied there were problems with Theranos’ technology 15 in discussions with Grocery A. For example, in response to a question about a rumor that 16 Theranos was facing technological challenges with its proprietary analyzers, Balwani and 17 Holmes assured Grocery A’s General Counsel that there was no technological problem with the 18 analyzers and that the TSPU was capable of performing 90 percent of the blood tests typically 19 requested by doctors for their patients. 20 35. Balwani also instructed Theranos’ laboratory employees to use code names to 21 refer to third-party analyzers in its laboratory information systems, ensuring that even other 22 Theranos employees would not know that Theranos was using third-party analyzers to conduct a 23 portion of its patient testing. 24 36. From its retail launch in September 2013 to the time it closed its clinical 25 laboratories in 2016, Theranos never used its miniLab for patient testing in its clinical laboratory. 26 Theranos conducted – at its height –12 tests using the earlier-generation TSPU, and processed 27 about 50 to 60 tests using the modified third-party analyzers. Theranos processed the remaining 28 COMPLAINT SEC V. BALWANI -8- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01603 Document 1 Filed 03/14/18 Page 9 of 23 1 100-plus tests it offered at Pharmacy A using the same types of industry standard technology as 2 other traditional laboratories, or sent tests out to third-party laboratories. 3 D. Starting in September 2013, Theranos Began Publicly Touting Theranos’ Proprietary Analyzers in Interviews with the Media, Notwithstanding Theranos’ Use of Commercially-Available Analyzers for Patient Testing 37. From 2013 to 2014, Theranos and Holmes emerged into the spotlight by issuing a 4 5 6 7 press release touting the launch of its retail offering with Pharmacy A and granting a number of 8 media interviews for articles that Holmes later used to solicit investors. In September 2013, 9 Theranos announced a partnership with Pharmacy A to offer a “new lab testing service through 10 Pharmacy A pharmacies nationwide.” By going to a Pharmacy A store in Palo Alto, California, 11 the first location to offer Theranos testing, consumers could “complete any clinician-directed lab 12 tests with as little as a few drops of blood and results available in a matter of hours.” 13 38. Around the same time, Holmes sat down with a reporter for the Wall Street 14 Journal purportedly to discuss the state of Theranos’ business. A Wall Street Journal article 15 accompanying the Pharmacy A launch announcement stated: 16 17 18 The secret that hundreds of employees are now refining involves devices that automate and miniaturize more than 1,000 laboratory tests, from routine blood work to advanced genetic analyses. Theranos’ processes are faster, cheaper, and more accurate than the conventional methods and require only microscopic blood volumes, not vial after vial of the stuff. 19 20 39. Additional articles written after interviews with Holmes continued to raise 21 Theranos’ public profile and tout its technological capabilities. An April 2014 Wired article 22 stated that “[i]nstead of vials of blood – one for every test needed – Theranos requires only a 23 pinprick and a drop of blood. With that they can perform hundreds of tests, from standard 24 cholesterol checks to sophisticated genetic analyses.” 25 40. Similarly, a June 2014 Fortune article noted that “[Theranos] currently offers 26 more than 200 – and is ramping up to offer more than 1,000 – of the most commonly ordered 27 blood diagnostic tests, all without the need for a syringe.” Fortune also distinguished Theranos 28 COMPLAINT SEC V. BALWANI -9- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01603 Document 1 Filed 03/14/18 Page 10 of 23 1 from other blood testing companies because “Theranos [] does not buy any analyzers from third 2 parties.” In contrast to the large traditional blood analyzers that occupied whole rooms, 3 Theranos’ proprietary analyzers “look[ed] like large desktop computer towers.” 4 41. Balwani knew, or was reckless in not knowing, that the Fortune article contained 5 misstatements about Theranos’ technology. Nevertheless, Balwani discussed the Fortune article 6 with investors but failed to correct the misstatements, instead commenting that the article 7 provided a favorable boost to Theranos’ public image. 8 42. Balwani did not correct the false or misleading statements in the articles that were 9 published between 2013 and 2015. In fact, in some instances, as Balwani knew, or was reckless 10 in not knowing, Theranos provided to potential investors some of the articles containing untrue 11 or misleading statements. 12 E. Beginning in 2013, Balwani, Holmes, and Theranos Raised Over $700 Million from Investors 43. In late 2013, Theranos had approximately $30 million in cash and short-term 13 14 15 securities, which would fund the company’s operations for only a few months. As Balwani and 16 Holmes knew, Theranos needed cash to continue spending money on research and development 17 to advance the miniLab, which at that time was not ready for commercial use. 18 44. From late 2013 to 2015, Balwani, Holmes, and Theranos raised over $700 19 million from investors in two financing rounds. These investors believed – based on false and 20 misleading statements by Balwani and Holmes – that Theranos had successfully developed a 21 proprietary analyzer that could conduct the full range of laboratory testing from a small sample 22 of blood. 23 1. 24 25 45. The Investor Solicitation Process Generally Included a Face-to-Face Meeting, a Technology Demonstration, and a Binder of Materials After an introduction to Holmes, potential investors would typically meet face-to- 26 face with Holmes, and at times, Balwani. During this meeting, which normally took place at 27 Theranos’ headquarters, Holmes described her vision for the company, including her motivation 28 COMPLAINT SEC V. BALWANI -10- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01603 Document 1 Filed 03/14/18 Page 11 of 23 1 to develop a technology that could perform blood testing on small samples – spurred by her own 2 fear of needles – and her larger desire to provide cheaper, faster, and more accurate laboratory 3 testing so that diagnoses of serious conditions and diseases could take place sooner. 4 46. This initial meeting was often followed by a purported demonstration of 5 Theranos’ proprietary analyzers, the TSPU, and the miniLab. In several instances, potential 6 investors would be taken by Balwani and Holmes to a different room to view Theranos’ desktop 7 computer-like analyzers. A phlebotomist would arrive to draw their blood through fingerstick, 8 using a nanotainer, a Theranos-developed collection device. Then the sample was either inserted 9 into the TSPU or taken away for processing. Based on what they saw, potential investors 10 believed that Theranos had tested their blood on either an earlier-generation TSPU or the 11 miniLab. As Balwani knew, however, Theranos often actually tested their blood on third-party 12 analyzers, because Theranos could not conduct all of the tests it offered prospective investors on 13 its proprietary analyzers. 14 47. As Balwani knew, or was reckless in not knowing, Theranos also sent investors a 15 binder of background materials, which Holmes instructed employees to compile. In addition to 16 incorporation documents and shareholder agreements, the typical investor binder included (1) a 17 cover letter drafted and signed by Holmes; (2) a company overview slide deck presentation; 18 (3) reports of clinical trials work Theranos performed with its pharmaceutical companies; 19 (4) financial projections; and (5) articles and profiles about Theranos, including the 2013 and 20 2014 articles from The Wall Street Journal, Wired, and Fortune that were written after Holmes 21 provided them with interviews. These materials were important to investors in considering 22 whether to invest in Theranos. 23 2. 24 Balwani and Holmes Made a Series of False or Misleading Statements to Investors That Confirmed the Company’s Public Narrative 25 26 27 48. Balwani and Holmes made statements to investors about the status of Theranos’ technology, historical contracts, commercial relationships, regulatory strategy, and financial 28 COMPLAINT SEC V. BALWANI -11- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01603 Document 1 Filed 03/14/18 Page 12 of 23 1 performance that were consistent with the public image they were promoting of Theranos as a 2 company that was revolutionizing the diagnostics industry. 3 a. 4 Balwani and Holmes Represented That Theranos’ Proprietary Analyzer Was Capable of Conducting the Full Range of Testing When It Could Not 5 6 49. Balwani and Holmes represented to investors that Theranos’ miniLab was 7 capable of processing a full range of laboratory tests. For instance, they told one investor that 8 Theranos’ proprietary analyzer could process over 1,000 Current Procedural Terminology 9 (“CPT”) codes and that Theranos had developed a technological solution for an additional 300 10 CPT codes. In 2014, Balwani told an investor that Theranos had between 150 and 200 11 fingerstick tests operating in its clinical lab. 12 50. Theranos’ company overview presentation, which Balwani sent to a potential 13 investor, also echoed these same statements. Under a slide titled “Same Tests, A Whole New 14 approach” and featuring a picture of a fingerprick and Theranos collection device, the 15 presentation included the statement “Theranos runs any test available in central laboratories, and 16 processes all sample types.” 17 51. But Theranos’ analyzers never performed comprehensive testing or processed 18 1,000 CPT codes, nor did Theranos ever offer between 150 and 200 fingerstick tests in its 19 clinical lab. In fact, as Balwani knew, or was reckless in not knowing, Theranos’ clinical lab 20 used the TSPU only to perform 12 of the tests offered to patients. 21 52. In addition to not disclosing the use of third-party analyzers to conduct the 22 demonstrations, Balwani’s and Holmes’ actions made it appear as if Theranos’ proprietary 23 analyzer had more extensive capabilities than it actually did. When potential investors tried out 24 Theranos’ services by bringing a physician’s laboratory requisition to a Pharmacy A store, 25 Holmes, with Balwani’s knowledge, instructed Theranos employees to remove certain tests from 26 the order if Theranos was unable to perform those tests using a fingerstick collection. 27 28 COMPLAINT SEC V. BALWANI -12- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01603 Document 1 Filed 03/14/18 Page 13 of 23 1 53. This conduct led investors to believe that Theranos’ proprietary analyzers were 2 broadly in use by Theranos and that they produced results on a broader range of tests than they 3 actually did. Investors would not have invested had they known Theranos’ promises about its 4 ability to run a broad range of tests were untrue and that the TSPU was being used to run only a 5 limited number of tests in its lab. When presenting to investors, Balwani knew, or was reckless 6 in not knowing, that the miniLab was not presently capable of processing a full range of 7 laboratory tests. 8 9 54. Balwani’s statements about the capabilities of Theranos’ proprietary analyzer were important to potential investors because the technology was a basis of their investments. b. 10 11 12 55. Balwani and Holmes Stated That Theranos Manufactured All of Its Own Analyzers When It Actually Used Third-Party Analyzers to Run the Majority of Its Tests Balwani and Holmes also represented to investors that Theranos manufactured all 13 of its own analyzers, when Theranos had in fact only manufactured its own TSPUs. For 14 instance, Balwani and Holmes told one investor that Theranos used its own analyzer equipment 15 and did not buy analyzer equipment from third parties. Balwani and Holmes explained to 16 another investor that 100 percent of Theranos’ analyzers were manufactured in Theranos’ facility 17 in Newark, California. 18 56. The company overview presentation, which Balwani provided to at least one 19 investor, also showed pictures of the TSPU and miniLab under the heading “Theranos Systems,” 20 but excluded pictures of the third-party analyzers Theranos was using. 21 22 23 24 25 57. Finally, the Fortune article – which Balwani received and discussed with an investor – stated that “Theranos [] does not buy any analyzers from third parties.” 58. These statements gave potential investors the impression that Theranos was only using its own TSPUs and miniLabs for patient testing. 59. As Balwani knew, or was reckless in not knowing, statements that Theranos 26 manufactured all of its analyzers were false or misleading in light of Theranos’ broad use of 27 third-party analyzers. Theranos conducted the majority of its testing using third-party analyzers. 28 COMPLAINT SEC V. BALWANI -13- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01603 Document 1 Filed 03/14/18 Page 14 of 23 1 60. Theranos’ capability to run the full range of laboratory testing on its proprietary 2 analyzer was a key competitive advantage potential investors considered when deciding whether 3 to invest in the company. 4 c. 5 6 61. Balwani and Holmes Made False or Misleading Statements About Theranos’ Historical Contracts with the DOD Balwani and Holmes also made false or misleading statements concerning 7 Theranos’ historical business contracts with the DOD. For instance, Balwani provided a 8 presentation to a potential investor that listed the DOD as a “[k]ey deployment” for Theranos. 9 62. Balwani and Holmes also made other statements that gave potential investors the 10 impression that these historical relationships were meaningful. Balwani and Holmes told 11 multiple investors that Theranos’ technology had been deployed by the DOD in the battlefield 12 and in Afghanistan. They also told investors that the DOD had deployed Theranos’ miniLab on 13 medevac helicopters. 14 63. Balwani told one potential investor in late 2013 that 75 percent of Theranos’ 15 current revenues were from the military. Balwani told another potential investor in late 2014 that 16 the company had long-dated contracts with the DOD that would provide future revenue to 17 Theranos. 18 64. Balwani knew, or was reckless in not knowing, that these statements were false 19 and misleading. While Theranos’ technology was used in a DOD burn study, it was never 20 deployed by the DOD in the battlefield, in Afghanistan, or on medevac helicopters. From 2011 21 to 2014, Theranos had discussions with multiple divisions of the DOD. However, Theranos 22 generated only approximately $300,000 from three DOD contracts. 23 65. Balwani’s statements about Theranos’ history with the DOD were important to 24 potential investors because these relationships lent legitimacy to Theranos’ business and its 25 proprietary analyzer. 26 27 28 COMPLAINT SEC V. BALWANI -14- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01603 Document 1 Filed 03/14/18 Page 15 of 23 d. 1 2 3 66. Balwani and Holmes Told Investors That Theranos’ Relationships with Pharmacy A and Grocery A Were Thriving When They Were Stalled During meetings and in investor binders, Balwani and Holmes described 4 Theranos’ thriving relationships with Pharmacy A and Grocery A. Much of the company 5 overview presentation was dedicated to Theranos’ relationship with Pharmacy A, showing 6 pictures of the patient service centers where patients would get their fingers pricked, and a map 7 of the number of Pharmacy A stores across the country that would soon be offering Theranos’ 8 blood testing. Notwithstanding that Balwani managed the Pharmacy A relationship, Balwani 9 represented to numerous investors in late 2014 that Theranos was expected to roll out its retail 10 services to hundreds of Pharmacy A stores in 2015. This information was also included in 11 financial projections that Balwani drafted for investors that were based on the assumption that 12 Theranos would be rolling out to 800 or 900 stores by year-end 2015. 13 67. However, by late 2014, while Theranos was raising the bulk of the over $700 14 million it raised during the relevant time period, Balwani was aware that Theranos’ retail roll out 15 with Pharmacy A was stalled due to, among other issues, some concerns Pharmacy A executives 16 had with regard to Theranos’ performance. 17 68. In August 2014, a senior Pharmacy A executive told Balwani that patient traffic 18 and fingerstick draw percentages would need to increase in order for the executive to convince 19 Pharmacy A management to roll out Theranos services to more stores. At a partnership meeting 20 later that month, which Balwani attended, Theranos and Pharmacy A discussed reducing the 21 number of Pharmacy A stores that Theranos services would be rolled out to in 2015 from 500 22 stores to 200. 23 69. In December 2014, Balwani met with Pharmacy A executives to discuss 24 potentially modifying the parties’ relationship to a landlord and tenant model, whereby Theranos 25 would rent space in Pharmacy A stores. Balwani did not share any of these developments with 26 investors. Balwani knew, or was reckless in not knowing, that Theranos would not be expanding 27 into Pharmacy A as quickly as he represented it would. 28 COMPLAINT SEC V. BALWANI -15- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01603 Document 1 Filed 03/14/18 Page 16 of 23 1 70. Balwani also told potential investors in late 2014 that Theranos services would be 2 rolled out in more than 100 Grocery A stores in January 2015. But the relationship with Grocery 3 A had already begun to stall in 2013, during which the parties had started discussing the 4 possibility of modifying the contract so that Theranos would rent space in individual 5 supermarkets. The parties were still engaged in these discussions in 2014. 6 71. By August 2014, Grocery A and Theranos ceased to be in communication with 7 one another. Nevertheless, when meeting with investors in the fall of 2014, Balwani continued 8 to discuss Theranos’ relationship with Grocery A to investors. Balwani knew, or was reckless in 9 not knowing, that his statements about Theranos’ relationship with Grocery A were false or 10 misleading. 11 72. The statements made by Balwani about the status of the Pharmacy A and Grocery 12 A relationships were important to investors because these contracts gave potential investors 13 confidence that Theranos’ technologies were commercially ready. Pharmacy A and Grocery A 14 were also the major drivers of future revenues for the company. In reality, Balwani and Holmes 15 were attempting to renegotiate Theranos’ agreements with these retail businesses in light of the 16 delays in rolling out. e. 17 18 19 20 73. Balwani and Holmes Claimed That Theranos Was Not Required to Seek FDA Approval Despite Repeatedly Being Told That Approval Was Necessary for Its Analyzers and Tests When speaking to potential investors in late 2013 through 2015, Balwani and 21 Holmes consistently stated that Theranos did not need to obtain approval from the FDA for its 22 miniLab and tests, and instead said that Theranos was applying for FDA approval voluntarily. 23 For instance, Balwani told a potential investor that approval was not required for the miniLab 24 because Theranos was not selling its devices to other companies. 25 74. Balwani and Holmes represented to business partners and investors that FDA 26 approval was not necessary because they believed that Theranos’ tests were laboratory developed 27 tests (“LDTs”), or tests developed and used inside a clinical laboratory, over which the FDA had 28 COMPLAINT SEC V. BALWANI -16- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01603 Document 1 Filed 03/14/18 Page 17 of 23 1 historically exercised its enforcement discretion to not require FDA clearance. However, 2 Balwani and Holmes were told by multiple parties, including Pharmacy A, that the FDA might 3 reject this regulatory strategy because Theranos’ miniLab had not previously obtained approval 4 from the FDA. 5 75. By the time of Theranos’ financing round in 2014, FDA representatives told 6 Balwani and Holmes that clearance or approval would be necessary for Theranos’ analyzer and 7 tests. In late 2013 and throughout 2014, FDA representatives met with Balwani and Holmes, 8 and sent letters which Balwani received, stating that they did not believe Theranos was offering 9 LDTs, and that even if Theranos was not selling its miniLab or tests, FDA clearance or approval 10 was necessary. Based on these communications, Balwani and Holmes agreed to submit all 11 components of Theranos’ testing technology to the FDA for clearance or approval. However, 12 Balwani and Holmes continued to raise additional funds while telling potential investors 13 Theranos was seeking FDA approval voluntarily. But Balwani knew, or was reckless in not 14 knowing, that FDA approval was necessary for Theranos’ analyzer and tests. 15 76. Balwani’s statements that Theranos did not need FDA approval or clearance were 16 important to investors because approval or clearance would have been an obstacle in the 17 company’s path to realizing full commercialization. f. 18 19 20 21 77. Balwani and Holmes Told Investors That Theranos Had Generated or Would Generate Over $100 Million in Revenues in 2014 and That It Was On Track to Make $1 Billion in Revenues in 2015, But This Information Had No Basis Balwani drafted the financial information that Theranos included in the investor 22 binders that projected that Theranos would generate over $100 million in revenues and break 23 even in 2014. These documents also represented that Theranos expected to generate 24 approximately $1 billion in revenues in 2015. Balwani told potential investors in October 2014 25 that he had confidence in the year-end 2014 projections, in part because they were already more 26 than nine months into the calendar year. 27 28 COMPLAINT SEC V. BALWANI -17- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01603 Document 1 Filed 03/14/18 Page 18 of 23 1 78. The projections further indicated that Theranos would obtain revenue from 2 several lines of business, including retail pharmacies (Pharmacy A and Grocery A), samples 3 collected from physicians’ offices, samples collected from hospitals, and pharmaceutical 4 services. 5 79. Some of Theranos’ projections, which Balwani provided to potential investors in 6 October 2014, stated Theranos would earn $40 million from pharmaceutical services, $46 7 million from lab services provided to hospitals, and $9 million from lab services provided to 8 physicians’ offices, all by the end of 2014. In reality, Theranos had no revenues from any of 9 those lines of business. And Balwani knew that Theranos was not on track to break even in 10 11 2014. 80. Theranos’ actual financial performance bore no resemblance to the financial 12 information Balwani shared with investors. Theranos recorded little more than $100,000 in 13 revenue in 2014 and was nowhere near generating $100 million in revenue by the end of 2014. 14 81. Balwani knew, or was reckless in not knowing, the 2014 revenue projection was 15 baseless. In October 2014, the same month he was providing year-end projected revenue figures 16 between $120 and $140 million to potential investors, Balwani told Theranos’ potential insurers 17 that Theranos was operating at an $8 million to $9 million monthly net loss. 18 82. Balwani also knew, or was reckless in not knowing, that Theranos was using 19 different projections with the third-party valuation firm that Theranos had retained to value the 20 company’s common stock. The valuation firm prepared a report dated October 2014, which 21 Balwani received, that analyzed the value of Theranos’ common stock based on an assumption 22 that it would recognize approximately $1 million in revenue for 2014 and $110 million for 2015. 23 83. By late 2014, Balwani knew Theranos’ roll-outs in Pharmacy A and Grocery A 24 stores were not going as planned. Balwani also knew the company had made limited progress in 25 advancing the other lines of business reflected in the projections. Balwani knew that Theranos 26 had no active discussions with pharmaceutical companies, had partnered with only a handful of 27 hospitals, and had no knowledge of any contracts between Theranos and physicians’ offices. 28 COMPLAINT SEC V. BALWANI -18- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01603 Document 1 Filed 03/14/18 Page 19 of 23 1 Balwani thus also knew, or was reckless in not knowing, that the 2015 $1 billion revenue 2 projections were unreasonable. 3 84. These financial projections were important to investors because they gave the 4 impression that Theranos had already secured contracts to deliver these revenues and that the 5 company’s business was growing rapidly. 6 F. Balwani Left Theranos in 2016 7 85. In May 2016, after regulatory inspections of Theranos’ clinical laboratories and 8 9 10 its manufacturing facility, Balwani left Theranos. 86. In 2017, Balwani, Holmes, and Theranos settled a lawsuit with an investor that alleged they had committed securities fraud. 11 FIRST CLAIM FOR RELIEF 12 Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder 13 87. 14 through 86. 15 88. The Commission re-alleges and incorporates by reference Paragraph Nos. 1 By engaging in the conduct described above, Defendant, directly or indirectly, in 16 connection with the purchase or sale of securities, by the use of means or instrumentalities of 17 interstate commerce, or the mails, with scienter: 18 (a) Employed devices, schemes, or artifices to defraud; 19 (b) Made untrue statements of material facts or omitted to state material facts 20 necessary in order to make the statements made, in the light of the 21 circumstances under which they were made, not misleading; and (c) 22 Engaged in acts, practices, or courses of business which operated or 23 would operate as a fraud or deceit upon other persons, including 24 purchasers and sellers of securities. 25 89. By reason of the foregoing, Defendant violated, and unless restrained and 26 enjoined will continue to violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and 27 Rule 10b-5 thereunder [17 C.F.R. §§ 240.10b-5]. 28 COMPLAINT SEC V. BALWANI -19- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01603 Document 1 Filed 03/14/18 Page 20 of 23 1 SECOND CLAIM FOR RELIEF 2 Violations of Sections 17(a)(1), (2), and (3) of the Securities Act 3 90. 4 through 86. 5 91. The Commission re-alleges and incorporates by reference Paragraph Nos. 1 By engaging in the conduct described above, Defendant directly or indirectly, in 6 the offer or sale of securities, by use of the means or instruments of transportation or 7 communication in interstate commerce or by use of the mails, 8 (a) with scienter, employed devices, schemes, or artifices to defraud; 9 (b) obtained money or property by means of untrue statements of material 10 fact or by omitting to state a material fact necessary in order to make the 11 statements made, in light of the circumstances under which they were 12 made, not misleading; and 13 (c) 14 or would operate as a fraud or deceit upon purchasers. 15 16 engaged in transactions, practices, or courses of business which operated 92. By reason of the foregoing, Defendant violated, and unless restrained and enjoined will continue to violate, Section 17(a) of the Securities Act [15 U.S.C. §§ 77q(a)]. 17 THIRD CLAIM FOR RELIEF Aiding and Abetting Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder 18 19 20 21 22 93. The Commission realleges and incorporates by reference paragraphs 1 through 94. By engaging in the conduct described above, Holmes or Theranos, directly or 86. 23 indirectly, in connection with the purchase or sale of securities, by the use of means or 24 instrumentalities of interstate commerce, or the mails, with scienter: (a) 25 Employed devices, schemes, or artifices to defraud; 26 27 28 COMPLAINT SEC V. BALWANI -20- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01603 Document 1 Filed 03/14/18 Page 21 of 23 1 (b) Made untrue statements of material facts or omitted to state material facts 2 necessary in order to make the statements made, in the light of the 3 circumstances under which they were made, not misleading; and 4 (c) Engaged in acts, practices, or courses of business which operated or 5 would operate as a fraud or deceit upon other persons, including 6 purchasers and sellers of securities. 7 95. By engaging in the acts and conduct alleged above, Defendant knowingly or 8 recklessly provided substantial assistance to Holmes’ or Theranos’ violations of Section 10(b) of 9 the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. §§ 240.10b-5], and 10 thereby aided and abetted such violations, and unless restrained and enjoined, will continue to 11 violate these provisions. 12 13 FOURTH CLAIM FOR RELIEF 14 Aiding and Abetting Violations of Section 17(a) of the Securities Act 15 16 17 96. The Commission realleges and incorporates by reference paragraphs 1 through 97. By engaging in the conduct described above, Holmes or Theranos directly or 86. 18 indirectly, in the offer or sale of securities, by use of the means or instruments of transportation 19 or communication in interstate commerce or by use of the mails, 20 (a) with scienter, employed devices, schemes, or artifices to defraud; 21 (b) obtained money or property by means of untrue statements of material 22 fact or by omitting to state a material fact necessary in order to make the 23 statements made, in light of the circumstances under which they were 24 made, not misleading; and 25 (c) 26 engaged in transactions, practices, or courses of business which operated or would operate as a fraud or deceit upon purchasers. 27 28 COMPLAINT SEC V. BALWANI -21- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01603 Document 1 Filed 03/14/18 Page 22 of 23 1 98. By engaging in the acts and conduct alleged above, Defendant knowingly or 2 recklessly provided substantial assistance to Holmes’ or Theranos’ violations of Section 17(a) of 3 the Securities Act [15 U.S.C. §§ 77q(a)], and thereby aided and abetted such violations, and 4 unless restrained and enjoined, will continue to violate these provisions. 5 6 PRAYER FOR RELIEF WHEREFORE, the Commission respectfully requests that this Court: 7 8 9 10 I. Permanently enjoin Defendant from directly or indirectly violating Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], and Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Rule 10b-5 [17 C.F.R. § 240.10b-5] thereunder. 11 II. 12 Issue an order requiring Defendant to pay a civil monetary penalty pursuant to 13 Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d) of the Exchange Act 14 [15 U.S.C. § 78u(d)(3)]. 15 16 III. Prohibit Defendant from serving as an officer or director of any entity having a class of 17 securities registered with the Commission pursuant to Section 12 of the Exchange Act [15 U.S.C. 18 § 78l] or that is required to file reports pursuant to Section 15(d) of the Exchange Act [15 U.S.C. 19 § 78o(d)], pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)] and 20 Section 21(d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)]. 21 IV. 22 Retain jurisdiction of this action in accordance with the principles of equity and the 23 Federal Rules of Civil Procedure in order to implement and carry out the terms of all orders and 24 decrees that may be entered, or to entertain any suitable application or motion for additional 25 relief within the jurisdiction of this Court. 26 27 28 COMPLAINT SEC V. BALWANI -22- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01603 Document 1 Filed 03/14/18 Page 23 of 23 1 2 V. Grant such other and further relief as this Court may determine to be just and necessary. 3 4 5 Dated: March 14, 2018 Respectfully submitted, 6 7 /s/ Jessica W. Chan JESSICA W. CHAN Attorney for Plaintiff SECURITIES AND EXCHANGE COMMISSION 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 COMPLAINT SEC V. BALWANI -23- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01603 Document 1-1 Filed 03/14/18 Page 1 of 2 CIVIL COVER SHEET JS 44 (Rev. 06/17) The JS 44 civil cover sheet and the information contained herein neither replace nor supplement the filing and service of pleadings or other papers as required by law, except as provided by local rules of court. This form, approved by the Judicial Conference of the United States in September 1974, is required for the use of the Clerk of Court for the purpose of initiating the civil docket sheet. (SEE INSTRUCTIONS ON NEXT PAGE OF THIS FORM.) I. (a) PLAINTIFFS DEFENDANTS SECURITIES AND EXCHANGE COMMISSION RAMESH "SUNNY" BALWANI (b) County of Residence of First Listed Plaintiff County of Residence of First Listed Defendant (EXCEPT IN U.S. PLAINTIFF CASES) NOTE: (c) Attorneys (Firm Name, Address, and Telephone Number) Attorneys (If Known) (see attached) (see attached) II. BASIS OF JURISDICTION (Place an “X” in One Box Only) ’ 1 U.S. Government Plaintiff ’ 3 Federal Question (U.S. Government Not a Party) ’ 2 U.S. Government Defendant ’ 4 Diversity (Indicate Citizenship of Parties in Item III) III. CITIZENSHIP OF PRINCIPAL PARTIES (Place an “X” in One Box for Plaintiff (For Diversity Cases Only) PTF Citizen of This State ’ 1 CONTRACT ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ REAL PROPERTY 210 Land Condemnation 220 Foreclosure 230 Rent Lease & Ejectment 240 Torts to Land 245 Tort Product Liability 290 All Other Real Property ’ ’ ’ ’ ’ ’ ’ PERSONAL INJURY 310 Airplane 315 Airplane Product Liability 320 Assault, Libel & Slander 330 Federal Employers’ Liability 340 Marine 345 Marine Product Liability 350 Motor Vehicle 355 Motor Vehicle Product Liability 360 Other Personal Injury 362 Personal Injury Medical Malpractice CIVIL RIGHTS 440 Other Civil Rights 441 Voting 442 Employment 443 Housing/ Accommodations 445 Amer. w/Disabilities Employment 446 Amer. w/Disabilities Other 448 Education and One Box for Defendant) PTF DEF Incorporated or Principal Place ’ 4 ’ 4 of Business In This State ’ 2 ’ 2 Incorporated and Principal Place of Business In Another State ’ 5 ’ 5 Citizen or Subject of a Foreign Country ’ 3 ’ 3 Foreign Nation ’ 6 ’ 6 Click here for: Nature of Suit Code Descriptions. TORTS 110 Insurance 120 Marine 130 Miller Act 140 Negotiable Instrument 150 Recovery of Overpayment & Enforcement of Judgment 151 Medicare Act 152 Recovery of Defaulted Student Loans (Excludes Veterans) 153 Recovery of Overpayment of Veteran’s Benefits 160 Stockholders’ Suits 190 Other Contract 195 Contract Product Liability 196 Franchise DEF ’ 1 Citizen of Another State IV. NATURE OF SUIT (Place an “X” in One Box Only) ’ ’ ’ ’ ’ Santa Clara (IN U.S. PLAINTIFF CASES ONLY) IN LAND CONDEMNATION CASES, USE THE LOCATION OF THE TRACT OF LAND INVOLVED. FORFEITURE/PENALTY PERSONAL INJURY ’ 365 Personal Injury Product Liability ’ 367 Health Care/ Pharmaceutical Personal Injury Product Liability ’ 368 Asbestos Personal Injury Product Liability PERSONAL PROPERTY ’ 370 Other Fraud ’ 371 Truth in Lending ’ 380 Other Personal Property Damage ’ 385 Property Damage Product Liability PRISONER PETITIONS Habeas Corpus: ’ 463 Alien Detainee ’ 510 Motions to Vacate Sentence ’ 530 General ’ 535 Death Penalty Other: ’ 540 Mandamus & Other ’ 550 Civil Rights ’ 555 Prison Condition ’ 560 Civil Detainee Conditions of Confinement ’ 625 Drug Related Seizure of Property 21 USC 881 ’ 690 Other LABOR ’ 710 Fair Labor Standards Act ’ 720 Labor/Management Relations ’ 740 Railway Labor Act ’ 751 Family and Medical Leave Act ’ 790 Other Labor Litigation ’ 791 Employee Retirement Income Security Act BANKRUPTCY ’ 422 Appeal 28 USC 158 ’ 423 Withdrawal 28 USC 157 PROPERTY RIGHTS ’ 820 Copyrights ’ 830 Patent ’ 835 Patent - Abbreviated New Drug Application ’ 840 Trademark SOCIAL SECURITY ’ 861 HIA (1395ff) ’ 862 Black Lung (923) ’ 863 DIWC/DIWW (405(g)) ’ 864 SSID Title XVI ’ 865 RSI (405(g)) FEDERAL TAX SUITS ’ 870 Taxes (U.S. Plaintiff or Defendant) ’ 871 IRS—Third Party 26 USC 7609 IMMIGRATION ’ 462 Naturalization Application ’ 465 Other Immigration Actions OTHER STATUTES ’ 375 False Claims Act ’ 376 Qui Tam (31 USC 3729(a)) ’ 400 State Reapportionment ’ 410 Antitrust ’ 430 Banks and Banking ’ 450 Commerce ’ 460 Deportation ’ 470 Racketeer Influenced and Corrupt Organizations ’ 480 Consumer Credit ’ 490 Cable/Sat TV ’ 850 Securities/Commodities/ Exchange ’ 890 Other Statutory Actions ’ 891 Agricultural Acts ’ 893 Environmental Matters ’ 895 Freedom of Information Act ’ 896 Arbitration ’ 899 Administrative Procedure Act/Review or Appeal of Agency Decision ’ 950 Constitutionality of State Statutes V. ORIGIN (Place an “X” in One Box Only) ’ 1 Original Proceeding ’ 2 Removed from State Court ’ 3 ’ 6 Multidistrict Litigation Transfer (specify) Cite the U.S. Civil Statute under which you are filing (Do not cite jurisdictional statutes unless diversity): Remanded from Appellate Court ’ 4 Reinstated or Reopened ’ 5 Transferred from Another District ’ 8 Multidistrict Litigation Direct File 15 U.S.C. §§ 77t(b), 77t(d), 77v(a), 78u(d), 78u(e) and 78aa VI. CAUSE OF ACTION Brief description of cause: Securities fraud ’ CHECK IF THIS IS A CLASS ACTION VII. REQUESTED IN UNDER RULE 23, F.R.Cv.P. COMPLAINT: VIII. RELATED CASE(S) (See instructions): IF ANY JUDGE DATE CHECK YES only if demanded in complaint: ’ Yes ’ No JURY DEMAND: DEMAND $ DOCKET NUMBER SIGNATURE OF ATTORNEY OF RECORD /s/ Jessica W. Chan 03/14/2018 FOR OFFICE USE ONLY RECEIPT # AMOUNT Print APPLYING IFP Save As... JUDGE MAG. JUDGE Reset Case 5:18-cv-01603 Document 1-1 Filed 03/14/18 Page 2 of 2 ATTACHMENT TO CIVIL COVER SHEET Securities and Exchange Commission, Plaintiff v. RAMESH BALWANI, Defendant. I. (c) Attorneys Attorneys for Plaintiff JINA L. CHOI (NY Bar No. 2699718) ERIN E. SCHNEIDER (Cal. Bar No. 216114) MONIQUE C. WINKLER (Cal. Bar No. 213031) JASON M. HABERMEYER (Cal. Bar No. 226607) MARC D. KATZ (Cal. Bar No. 189534) JESSICA W. CHAN (Cal. Bar No. 247669) RAHUL KOLHATKAR (Cal. Bar No. 261781) SECURITIES AND EXCHANGE COMMISSION 44 Montgomery Street, 28th Floor San Francisco, California 94104 Telephone: (415) 705-2500 Facsimile: (415) 705-2501 Attorney for Defendant Ramesh “Sunny” Balwani Jeffrey B. Coopersmith, Esq. Davis Wright Tremaine LLP 1201 3rd Avenue, Suite 2200 Seattle WA 98101 Telephone: (206) 622-3150 Facsimile: (206) 757-7700 ATTACHMENT TO CIVIL COVER SHEET