Case 5:18-cv-01602 Document 1 Filed 03/14/18 Page 1 of 24 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 19 Case No. Plaintiff, COMPLAINT vs. ELIZABETH HOLMES and THERANOS, INC. Defendants. 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 Balwani. COMPLAINT SEC V .HOLMES, ET AL. -1- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01602 Document 1 Filed 03/14/18 Page 2 of 24 1 2. Holmes, Balwani, 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. Holmes, Balwani, 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 Holmes’ and Balwani’s representations, 17 investors understood 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 Holmes and Balwani, 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, Holmes, Balwani, 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. HOLMES, ET AL. -2- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01602 Document 1 Filed 03/14/18 Page 3 of 24 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 Holmes and Theranos 4 from future violations of the securities laws, requiring Holmes to pay a civil monetary penalty, 5 prohibiting Holmes from acting as an officer or director of any publicly-listed company, 6 requiring Holmes to return all of the shares she obtained during this period, requiring Holmes to 7 relinquish super-majority voting shares she obtained during this period, and providing other 8 appropriate relief. 9 10 JURISDICTION AND VENUE 7. The Commission brings this action pursuant to Sections 20(b), 20(d), and 22(a) 11 of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. §§ 77t(b), 77t(d), and 77v(a)] and 12 Sections 21(d), 21(e), and 27 of the Securities Exchange Act of 1934 (“Exchange Act”) 13 [15 U.S.C. §§ 78u(d), 78u(e), and 78aa]. 14 8. This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d)(1) 15 and 22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d)(1), and 77v(a)] and Sections 21(d), 16 21(e) and 27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e) and 78aa]. 17 9. Defendants, directly or indirectly, made use of the means and instrumentalities of 18 interstate commerce or of the mails in connection with the acts, transactions, practices, and 19 courses of business alleged in this complaint. 20 10. Venue is proper in this District pursuant to Section 22(a) of the Securities Act 21 [15 U.S.C. § 77v(a)] and Section 27(a) of the Exchange Act [15 U.S.C. § 78aa(a)]. Theranos is 22 headquartered in Newark, California, and Holmes resides in the District. In addition, acts, 23 transactions, practices, and courses of business that form the basis for the violations alleged in 24 this complaint occurred in this District. Defendants met with and solicited prospective Theranos 25 investors in this District, and the relevant offers or sales of securities took place in this District. 26 27 28 COMPLAINT SEC V. HOLMES, ET AL. -3- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01602 Document 1 Filed 03/14/18 Page 4 of 24 1 11. Under Civil Local Rule 3-2(d), this civil action should be assigned to the San 2 Jose Division, because a substantial part of the events or omissions which give rise to the claims 3 alleged herein occurred in Santa Clara County. 4 5 DEFENDANTS 12. Elizabeth Holmes, age 34, of Los Altos Hills, California, is the Chief Executive 6 Officer (“CEO”) and Chairman of the Board of Theranos, Inc. Holmes was paid a salary of 7 approximately $200,000 to $390,000 per year between 2013 and 2015. During the same period, 8 she also exercised approximately 53.7 million stock options and received super-majority voting, 9 Class B common shares, which granted her almost complete voting control over the company. 10 11 Holmes has never sold any of her Theranos stock. 13. Theranos, Inc. is a Delaware corporation, established by Holmes in 2003, with 12 its principal place of business in Newark, California. From 2013 through 2015 (the “relevant 13 time period”), Theranos’ principal place of business was in Palo Alto, California and its sole 14 managing executives were Holmes and Balwani. 15 16 17 RELEVANT INDIVIDUAL 14. Ramesh “Sunny” Balwani, age 52, of Atherton, California, was the President and Chief Operating Officer of Theranos, Inc. from September 2009 to May 2016. 18 FACTUAL ALLEGATIONS 19 A. Background 20 15. Elizabeth Holmes founded Theranos, a diagnostics company, in 2003 after 21 leaving college during her second year. Holmes had a vision of developing new diagnostic 22 technologies, with a focus on small sample testing and easier access to testing results for 23 prevention and earlier diagnosis. 24 16. For the first five years of its existence, Theranos focused its efforts on developing 25 its proprietary analyzer, the Theranos Sample Processing Unit, or “TSPU,” to analyze blood 26 taken from a fingerstick and on assisting pharmaceutical companies with their clinical trials. The 27 earliest generation TSPU was a small point-of-care device that was capable of performing only a 28 COMPLAINT SEC V. HOLMES, ET AL. -4- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01602 Document 1 Filed 03/14/18 Page 5 of 24 1 few tests. A point-of-care device can be used to obtain results near where patients provide 2 samples, such as medical offices. 3 17. In 2009, as Theranos was on the verge of running out of money, Holmes turned 4 to Balwani to guarantee a line of credit for the company. Balwani joined the company and 5 became its President and COO. 6 18. From the time that Balwani joined Theranos until his departure in 2016, Theranos 7 had no other senior managing executives besides Holmes and Balwani. Holmes generally 8 focused on device innovation, board interaction, and strategic relationships, while Balwani 9 concentrated on developing software for Theranos’ technology and managing personnel and 10 operations. Still, they collaborated closely with each other and made decisions about the 11 company together. 12 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- 13 14 15 generation TSPU. The earlier-generation TSPU was designed to perform only one method of 16 testing – immunochemistries – and could process only one sample at a time. In 2009, Holmes 17 and Balwani turned the company’s efforts towards developing a new version of the TSPU, which 18 they hoped would one day be able to perform a broader range of laboratory testing by 19 incorporating additional methods of testing. They later referred to this version of the TSPU as 20 the miniLab. 21 20. In early 2010, even though the miniLab was not commercially ready, Holmes and 22 Balwani decided to focus on the retail clinical laboratory market by pursuing contracts with a 23 large national pharmacy chain (“Pharmacy A”) and a large national grocery chain (“Grocery 24 A”). Their vision was to place miniLabs at designated “Patient Service Centers” in retail stores 25 so that patients could get their diagnostic tests performed while shopping. 26 27 21. In connection with discussions about a potential partnership with Pharmacy A, Holmes approved and provided presentations and other written materials to Pharmacy A 28 COMPLAINT SEC V. HOLMES, ET AL. -5- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01602 Document 1 Filed 03/14/18 Page 6 of 24 1 executives representing that Theranos had the ability to conduct a broad range of tests on its 2 proprietary analyzer, including general chemistry tests, wellness tests, and some predictive and 3 diagnostic health tests (which involved methods beyond immunochemistries). These materials 4 stated that Theranos would be ready to begin blood testing on its proprietary analyzer at 5 Pharmacy A stores by the fourth quarter of 2010. 6 22. Holmes also told Pharmacy A executives that Theranos could conduct hundreds 7 of blood tests through fingerstick (or the puncture of a finger), that its testing could be conducted 8 in a rapid timeframe (in less than one hour), and that it could be offered for a reasonable price 9 (much less than Theranos’ competitors). Holmes also told Pharmacy A that its analyzer was 10 11 already deployed on military helicopters. 23. Based on these representations, Pharmacy A executives thought that the miniLab 12 was capable of performing, in a clinical lab setting, a wide range of the tests offered by 13 traditional laboratories. For example, Holmes told Pharmacy A that Theranos could, on its 14 analyzer – the miniLab – perform approximately 90 percent of the tests that a large, traditional 15 central lab could perform. In July 2010, Pharmacy A entered into a contract with Theranos to 16 roll out Theranos’ service to Pharmacy A stores. 17 24. Holmes also made similar statements to Grocery A. She told Grocery A’s then- 18 CEO that Theranos had successfully miniaturized the conventional laboratory. Holmes also told 19 him that Theranos’ analyzers were being deployed in the battlefield. Based on these 20 representations, in September 2010, Grocery A contracted with Theranos to offer Theranos 21 patient testing in Grocery A stores. 22 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 23 24 25 26 27 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 strategy, and told Holmes and Balwani that Theranos might need to obtain FDA approval for its 28 COMPLAINT SEC V. HOLMES, ET AL. -6- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01602 Document 1 Filed 03/14/18 Page 7 of 24 1 miniLab and certify each of its stores as a laboratory in order for the analyzers to be used in 2 Pharmacy A stores. 3 27. Based on these concerns, in 2012, Theranos and Pharmacy A agreed to modify 4 their original contract to reflect a roll-out of Theranos’ service in two phases. In the first phase, 5 before Theranos received regulatory approvals for its analyzers, patient samples would be 6 transported from Pharmacy A stores to centralized laboratories operated by Theranos and tested 7 on Theranos’ miniLab there. Theranos opened and operated two centralized laboratories to test 8 patient samples collected from Pharmacy A stores. In the second phase, after Theranos had 9 received the necessary regulatory approvals, Theranos’ retail offering at Pharmacy A would be 10 11 performed on miniLabs placed in Pharmacy A stores. 28. But as September 2013 approached – the date for the launch of the first phase of 12 the roll out of Theranos services in Pharmacy A stores – it became clear to Holmes that the 13 miniLab would not be ready. At the time, Theranos had not fully integrated other testing 14 methods into the miniLab and had not completed the scientific verification steps needed to make 15 any of its blood tests available on the miniLab for patient testing. As a result, Holmes and 16 Balwani made the decision to use Theranos’ earlier-generation TSPUs, which could only be used 17 to perform immunochemistries, for patient testing. 18 29. In order to offer a broader range of fingerstick tests at Pharmacy A, Holmes and 19 Balwani asked Theranos’ engineers in July 2013 to modify third-party analyzers from 20 commercial manufacturers so they could analyze fingerstick samples. Theranos scientists spent 21 the two months leading up to the retail launch preparing as many fingerstick tests as possible on 22 the third-party analyzers, which could typically process only venous samples. 23 30. Holmes and Theranos never told Pharmacy A and Grocery A about Theranos’ 24 technological challenges. For instance, in July and August 2013, Theranos coordinated 25 technology demonstrations for various Pharmacy A executives in advance of the retail launch. 26 Holmes instructed Theranos employees to place both earlier generation TSPUs and miniLabs in 27 a demonstration room where Theranos collected fingerstick samples from Pharmacy A 28 COMPLAINT SEC V. HOLMES, ET AL. -7- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01602 Document 1 Filed 03/14/18 Page 8 of 24 1 executives. Instead of using these machines to process the tests on these samples, and 2 unbeknownst to the Pharmacy A executives, Theranos used the modified third-party machines to 3 process a portion of the tests. 4 31. Holmes also instructed Theranos employees to place numerous miniLabs – which 5 could only be used for research and development purposes and could not be used for clinical 6 testing – in a room in Theranos’ clinical lab. This made it appear as if Theranos used its miniLab 7 for clinical purposes. Holmes then led a group of Pharmacy A executives on a tour of that room, 8 and those Pharmacy A executives saw rows of miniLabs in Theranos’ clinical lab. 9 32. Based on Holmes’ presentation, Pharmacy A executives understood that the 10 blood from their demonstration samples would be tested on Theranos’ miniLabs. Holmes never 11 told the executives that Theranos was actually testing some of their blood on modified third- 12 party analyzers. 13 33. At the end of 2013, Pharmacy A agreed to accelerate a portion of a $100 million 14 “innovation fee” to help Theranos broaden its roll-out of services to Pharmacy A stores. 15 Unbeknownst to Pharmacy A, Theranos was scaling its retail offering by relying on third-party 16 analyzers. 17 34. Neither Holmes nor Theranos ever told anyone at Pharmacy A that Theranos 18 used third-party analyzers, including those that had been modified to test fingerstick blood. 19 Holmes and Theranos also never told Pharmacy A that Theranos was using third-party analyzers 20 to perform the majority of its testing. If Pharmacy A had known that Theranos was using third- 21 party analyzers for a majority of its patient testing, it would not have accelerated the payment of 22 the innovation fee. 23 35. Holmes and Balwani also denied there were problems with Theranos’ technology 24 in discussions with Grocery A. For example, in response to a question about a rumor that 25 Theranos was facing technological challenges with its proprietary analyzers, Holmes and 26 Balwani assured Grocery A’s General Counsel that there was no technological problem with the 27 28 COMPLAINT SEC V. HOLMES, ET AL. -8- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01602 Document 1 Filed 03/14/18 Page 9 of 24 1 analyzers and that the TSPU was capable of performing 90 percent of the blood tests typically 2 requested by doctors for their patients. 3 36. From its retail launch in September 2013 to the time it closed its clinical 4 laboratories in 2016, Theranos never used its miniLab for patient testing in its clinical laboratory. 5 Theranos conducted – at its height –12 tests using the earlier-generation TSPU, and processed 6 about 50 to 60 tests using the modified third-party analyzers. Theranos processed the remaining 7 100-plus tests it offered at Pharmacy A using the same types of industry standard technology as 8 other traditional laboratories, or sent tests out to third-party laboratories. 9 D. Starting in September 2013, Holmes and 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 10 11 12 13 press release touting the launch of its retail offering with Pharmacy A and granting a number of 14 media interviews for articles that Holmes later used to solicit investors. In September 2013, 15 Theranos announced a partnership with Pharmacy A to offer a “new lab testing service through 16 Pharmacy A pharmacies nationwide.” By going to a Pharmacy A store in Palo Alto, California, 17 the first location to offer Theranos testing, consumers could “complete any clinician-directed lab 18 tests with as little as a few drops of blood and results available in a matter of hours.” 19 38. Around the same time, Holmes sat down with a reporter for the Wall Street 20 Journal purportedly to discuss the state of Theranos’ business. A Wall Street Journal article 21 accompanying the Pharmacy A launch announcement stated: 22 23 24 25 26 27 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. 39. Additional articles written after interviews with Holmes continued to raise Theranos’ public profile and tout its technological capabilities. An April 2014 Wired article 28 COMPLAINT SEC V. HOLMES, ET AL. -9- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01602 Document 1 Filed 03/14/18 Page 10 of 24 1 stated that “[i]nstead of vials of blood – one for every test needed – Theranos requires only a 2 pinprick and a drop of blood. With that they can perform hundreds of tests, from standard 3 cholesterol checks to sophisticated genetic analyses.” 4 40. Similarly, a June 2014 Fortune article noted that “[Theranos] currently offers 5 more than 200 – and is ramping up to offer more than 1,000 – of the most commonly ordered 6 blood diagnostic tests, all without the need for a syringe.” Fortune also distinguished Theranos 7 from other blood testing companies because “Theranos [] does not buy any analyzers from third 8 parties.” In contrast to the large traditional blood analyzers that occupied whole rooms, 9 Theranos’ proprietary analyzers “look[ed] like large desktop computer towers.” 10 41. By the end of 2014, Forbes declared that Holmes was “the youngest self-made 11 woman billionaire” whose company could, “[w]ith a painless prick, . . . quickly test a drop of 12 blood at a fraction of the price of commercial labs which need more than one vial.” 13 42. Holmes sat for interviews and communicated with journalists about Theranos and 14 its technology. In email conversations with the Fortune reporter, Holmes stated that “it is ok to 15 say the analytical systems are about the size of a desktop computer.” Holmes also suggested 16 describing Theranos’ miniLab as “much smaller than in conventional laboratories or have a 17 smaller space requirement than conventional laboratories.” The Fortune reporter used a version 18 of this statement in his article on Theranos. As Holmes knew, or was reckless in not knowing, 19 this was misleading because the device she was describing – the miniLab – was not in use in 20 Theranos’ clinical laboratory. 21 43. Holmes did not correct the false or misleading statements in the articles that were 22 published between 2013 and 2015. In fact, in some instances, she and Theranos provided some 23 of the articles containing untrue or misleading statements to potential investors. 24 E. Beginning in 2013, Holmes and Theranos Raised Over $700 Million from Investors and Holmes Obtained Super-Voting Control of Theranos While Misleading Investors 44. In late 2013, Theranos had approximately $30 million in cash and short-term 25 26 27 securities, which would fund the company’s operations for only a few months. As Holmes 28 COMPLAINT SEC V. HOLMES, ET AL. -10- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01602 Document 1 Filed 03/14/18 Page 11 of 24 1 knew, Theranos needed cash to continue spending money on research and development to 2 advance the miniLab, which at that time was not ready for commercial use. 3 45. Holmes anticipated that Theranos would need to raise much more money than it 4 had in its earlier financing rounds and that such fundraising likely would dilute her ownership of 5 the company. In order to retain her control of the company, Holmes in early 2014 convinced 6 Theranos’ board and shareholders to pass a resolution creating a new, separate class of shares 7 (“Class B Shares”). 8 46. 9 This resolution (1) split Theranos’ stock in a 1 to 5 ratio to allow for future fundraising, and (2) created Class B Shares, which had super-voting (100x) power and would be 10 given only to Holmes. Shareholders were given only a few days to consider and vote on this 11 resolution. Following the resolution’s passage, Holmes owned just over half of the company’s 12 outstanding shares, but over 99 percent of its voting power. Holmes obtained the Class B Shares 13 during the relevant time period. 14 47. From late 2013 to 2015, Holmes, Balwani, and Theranos raised over $700 15 million from investors in two financing rounds. These investors believed – based on false and 16 misleading statements by Holmes – that Theranos had successfully developed a proprietary 17 analyzer that could conduct the full range of laboratory testing from a small sample of blood. 18 1. 19 20 48. 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- 21 face with Holmes, and at times, Balwani. During this meeting, which normally took place at 22 Theranos’ headquarters, Holmes described her vision for the company, including her motivation 23 to develop a technology that could perform blood testing on small samples – spurred by her own 24 fear of needles – and her larger desire to provide cheaper, faster, and more accurate laboratory 25 testing so that diagnoses of serious conditions and diseases could take place sooner. 26 27 49. This initial meeting was often followed by a purported demonstration of Theranos’ proprietary analyzers, the TSPU, and the miniLab. In several instances, potential 28 COMPLAINT SEC V. HOLMES, ET AL. -11- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01602 Document 1 Filed 03/14/18 Page 12 of 24 1 investors would be taken by Holmes and Balwani to a different room to view Theranos’ desktop 2 computer-like analyzers. A phlebotomist would arrive to draw their blood through fingerstick, 3 using a nanotainer, a Theranos-developed collection device. Then the sample was either inserted 4 into the TSPU or taken away for processing. Based on what they saw, potential investors 5 believed that Theranos had tested their blood on either an earlier-generation TSPU or the 6 miniLab. As Holmes knew, or was reckless in not knowing, however, Theranos often actually 7 tested their blood on third-party analyzers, because Theranos could not conduct all of the tests it 8 offered prospective investors on its proprietary analyzers. 9 50. Theranos also sent investors a binder of background materials, which Holmes 10 instructed employees to compile. In addition to incorporation documents and shareholder 11 agreements, the typical investor binder included (1) a cover letter drafted and signed by Holmes; 12 (2) a company overview slide deck presentation; (3) reports of clinical trials work Theranos 13 performed with its pharmaceutical companies; (4) financial projections; and (5) articles and 14 profiles about Theranos, including the 2013 and 2014 articles from The Wall Street Journal, 15 Wired, and Fortune that were written after Holmes provided them with interviews. These 16 materials were important to investors in considering whether to invest in Theranos. 17 51. One section of the investor binders touted Theranos’ work with pharmaceutical 18 companies and contained a number of reports purportedly related to the clinical trials work 19 Theranos had performed with those pharmaceutical companies. The reports prominently 20 featured the company logos of well-known pharmaceutical companies, suggesting that the 21 reports were drafted by these pharmaceutical companies. However, as Holmes knew, only one 22 report in the investor binder was co-written by a pharmaceutical client. The other two reports 23 were drafted by Theranos employees, despite displaying the logos of pharmaceutical companies. 24 Investors believed that pharmaceutical companies had written their own endorsements of 25 Theranos’ technology, when the pharmaceutical companies had not. 26 27 28 COMPLAINT SEC V. HOLMES, ET AL. -12- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01602 Document 1 Filed 03/14/18 Page 13 of 24 2. 1 2 3 52. Holmes and Theranos Made a Series of False or Misleading Statements to Investors That Confirmed the Company’s Public Narrative Holmes made statements to investors about the status of Theranos’ technology, 4 historical contracts, commercial relationships, regulatory strategy, and financial performance that 5 were consistent with the public image she and Theranos were promoting of Theranos as a 6 company that was revolutionizing the diagnostics industry. a. 7 8 9 53. Holmes and Theranos Represented That Theranos’ Proprietary Analyzer Was Capable of Conducting the Full Range of Testing When It Could Not Holmes represented to investors that Theranos’ miniLab was capable of 10 processing a full range of laboratory tests. For instance, Holmes and Balwani told one investor 11 that Theranos’ proprietary analyzer could process over 1,000 Current Procedural Terminology 12 (“CPT”) codes and that Theranos had developed a technological solution for an additional 300 13 CPT codes. She made similar representations to other investors, claiming that Theranos could 14 run all of its blood tests on one analyzer using chemicals from one consumable cartridge. 15 54. Theranos’ company overview presentation that Theranos included in investor 16 binders also echoed these same statements. The presentation noted, among other things, that 17 “Theranos’ proprietary, patented technology runs comprehensive blood tests from a finger-stick 18 and tests from micro-samples of other matrices, and generates significantly higher integrity data 19 than currently possible.” 20 55. But Theranos’ analyzers never performed comprehensive testing or processed 21 1,000 CPT codes in its clinical lab. In fact, as Holmes knew, or was reckless in not knowing, 22 Theranos’ clinical lab used the TSPU only to perform 12 of the tests offered to patients. 23 56. In addition to not disclosing the use of third-party analyzers to conduct the 24 demonstrations, Holmes’ and Theranos’ actions made it appear as if Theranos’ proprietary 25 analyzer had more extensive capabilities than it actually did. When potential investors tried out 26 Theranos’ services by bringing a physician’s laboratory requisition to a Pharmacy A store, 27 28 COMPLAINT SEC V. HOLMES, ET AL. -13- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01602 Document 1 Filed 03/14/18 Page 14 of 24 1 Holmes instructed Theranos employees to remove certain tests from the order if Theranos was 2 unable to perform those tests using a fingerstick collection. 3 57. This conduct led investors to believe that Theranos’ proprietary analyzers were 4 broadly in use by Theranos and that they produced results on a broader range of tests than they 5 actually did. Investors would not have invested had they known Theranos’ promises about its 6 ability to run a broad range of tests were untrue and that the TSPU was being used to run only a 7 limited number of tests in its lab. When presenting to investors, Holmes knew, or was reckless 8 in not knowing, that the miniLab was not presently capable of processing a full range of 9 laboratory tests. 10 11 58. Holmes’ statements about the capabilities of Theranos’ proprietary analyzer were important to many potential investors because the technology was a basis of their investments. b. 12 13 14 59. Holmes and Theranos Stated That Theranos Manufactured All of Its Own Analyzers When It Actually Used Third-Party Analyzers to Run the Majority of Its Tests Holmes also represented to investors that Theranos manufactured all of its own 15 analyzers, when Theranos had in fact only manufactured its own TSPUs. For instance, Holmes 16 told one investor that Theranos used its own analyzer equipment and did not buy analyzer 17 equipment from third parties. She and Balwani explained to another investor that 100 percent of 18 Theranos’ analyzers were manufactured in Theranos’ facility in Newark, California. 19 60. The company overview presentation in some investor binders also showed 20 pictures of the TSPU and miniLab under the heading “Theranos Systems,” but excluded pictures 21 of the third-party analyzers Theranos was using. 22 61. Finally, the Fortune article – for which Holmes was extensively interviewed and 23 which she included in materials sent to investors – stated that “Theranos [] does not buy any 24 analyzers from third parties.” 25 26 62. These statements gave potential investors the impression that Theranos was only using its own TSPUs and miniLabs for patient testing. 27 28 COMPLAINT SEC V. HOLMES, ET AL. -14- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01602 Document 1 Filed 03/14/18 Page 15 of 24 1 63. As Holmes knew, or was reckless in not knowing, statements that Theranos 2 manufactured all of its analyzers were false or misleading in light of Theranos’ broad use of 3 third-party analyzers. Theranos conducted the majority of its testing using third-party analyzers. 4 64. Theranos’ capability to run the full range of laboratory testing on its proprietary 5 analyzer was a key competitive advantage potential investors considered when deciding whether 6 to invest in the company. 7 c. 8 9 65. Holmes and Theranos Made False or Misleading Statements About Theranos’ Historical Contracts with the DOD Holmes also made false or misleading statements concerning Theranos’ historical 10 business contracts with the DOD. In Holmes’ cover letter, which she included in investor 11 binders, she highlighted the company’s “historical” work with “military clients.” The third page 12 of the company overview presentation introduces the company with the following statement, 13 “[c]urrent and past clients include . . . U.S. and foreign government health and military 14 organizations.” 15 66. Holmes also made other statements that gave potential investors the impression 16 that these historical relationships were meaningful. Holmes told multiple investors that 17 Theranos’ technology had been deployed by the DOD in the battlefield and in Afghanistan. 18 Holmes told investors that the DOD had deployed Theranos’ miniLab on medevac helicopters. 19 67. Holmes also included a comment in her cover letter that “Theranos has grown 20 from cash from its contracts for some time,” which misled investors into believing that these 21 contracts funded Theranos’ operations. She made the same comment verbally to other potential 22 investors. Although Theranos had discussions with different military and government entities, 23 the company earned limited revenues from those efforts, and Theranos primarily grew from 24 investor capital raises. 25 68. Holmes knew, or was reckless in not knowing, that these statements were false 26 and misleading. While Theranos’ technology was used in a DOD burn study, it was never 27 deployed by the DOD in the battlefield, in Afghanistan, or on medevac helicopters. From 2011 28 COMPLAINT SEC V. HOLMES, ET AL. -15- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01602 Document 1 Filed 03/14/18 Page 16 of 24 1 to 2014, Holmes had discussions with multiple divisions of the DOD. However, Theranos 2 generated only approximately $300,000 from three DOD contracts. 3 69. Holmes’ statements about Theranos’ history with the DOD were important to 4 potential investors because these relationships lent legitimacy to Theranos’ business and its 5 proprietary analyzer. d. 6 7 8 9 70. Holmes and Theranos Told Investors That Theranos’ Relationships with Pharmacy A and Grocery A Were Thriving When They Were Stalled During meetings and in investor binders, Holmes described Theranos’ thriving relationships with Pharmacy A and Grocery A. Much of the company overview presentation 10 was dedicated to Theranos’ relationship with Pharmacy A, showing pictures of the patient 11 service centers where patients would get their fingers pricked, and a map of the number of 12 Pharmacy A stores across the country that would soon be offering Theranos’ blood testing. 13 71. Holmes also noted, in her cover letter, that since the launch of Theranos’ roll-out 14 in Pharmacy A stores, the company had also begun “operating in the consumer, physician, and 15 hospital laboratory testing business,” highlighting the importance of the Pharmacy A relationship 16 in paving the way for these other lines of business. 17 72. Most importantly, Holmes represented to numerous investors in late 2014 that 18 Theranos was expected to roll out its retail services to hundreds of Pharmacy A stores in 2015. 19 This information was also included in financial projections that Theranos sent to investors that 20 were based on the assumption that Theranos would be rolling out to 800 or 900 stores by year- 21 end 2015. 22 73. However, by late 2014, while Theranos was raising the bulk of the over $700 23 million it raised during the relevant time period, Holmes was aware that Theranos’ retail roll out 24 with Pharmacy A was stalled due to, among other issues, some concerns Pharmacy A executives 25 had with regard to Theranos’ performance. 26 27 74. Holmes knew that patient traffic and the percentage of collections being performed by fingerstick were important metrics for Pharmacy A and also knew that Pharmacy 28 COMPLAINT SEC V. HOLMES, ET AL. -16- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01602 Document 1 Filed 03/14/18 Page 17 of 24 1 A had concerns regarding the lower than expected number of fingerstick collections being 2 performed in its stores. 3 75. In December 2014, Holmes met with Pharmacy A executives to discuss 4 potentially modifying the parties’ relationship to a landlord and tenant model, whereby Theranos 5 would rent space in Pharmacy A stores. Holmes did not share any of these developments with 6 investors. Holmes knew, or was reckless in not knowing, that Theranos would not be expanding 7 into Pharmacy A as quickly as she represented it would. 8 9 76. Holmes also told investors in late 2014 that Theranos services would be rolled out in more than 100 Grocery A stores in January 2015. But the relationship with Grocery A had 10 already begun to stall in 2013, during which the parties had started discussing the possibility of 11 modifying the contract so that Theranos would rent space in individual supermarkets. The 12 parties were still engaged in these discussions in 2014. 13 77. By June 2014, Holmes told a Theranos board member that she was contemplating 14 terminating Theranos’ relationship with Grocery A. By August 2014, the parties ceased to be in 15 communication with one another. Nevertheless, when meeting with investors in the fall of 2014, 16 Holmes continued to discuss Theranos’ relationship with Grocery A to investors. Holmes knew, 17 or was reckless in not knowing, that her statements about Theranos’ relationship with Grocery A 18 were false or misleading. 19 78. The statements made by Holmes about the status of the Pharmacy A and Grocery 20 A relationships were important to investors because these contracts gave potential investors 21 confidence that Theranos’ technologies were commercially ready. Pharmacy A and Grocery A 22 were also the major drivers of future revenues for the company. In reality, Holmes and Theranos 23 were attempting to renegotiate Theranos’ agreements with these retail businesses in light of the 24 delays in rolling out. 25 26 27 28 COMPLAINT SEC V. HOLMES, ET AL. -17- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01602 Document 1 Filed 03/14/18 Page 18 of 24 e. 1 2 3 79. 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, Holmes 4 consistently stated that Theranos did not need to obtain approval from the FDA for its miniLab 5 and tests, and instead said that Theranos was applying for FDA approval voluntarily because it 6 was the “gold standard.” For instance, Holmes told multiple investors that approval was not 7 required for the miniLab because Theranos was not selling its devices to other companies. 8 9 80. Holmes represented to business partners and investors that FDA approval was not necessary because she believed that Theranos’ tests were laboratory developed tests (“LDTs”), 10 or tests developed and used inside a clinical laboratory, over which the FDA had historically 11 exercised its enforcement discretion to not require FDA clearance. However, she and Balwani 12 were told by multiple parties, including Pharmacy A, that the FDA might reject this regulatory 13 strategy because Theranos’ miniLab had not previously obtained approval from the FDA. 14 Holmes and FDA representatives discussed Theranos’ regulatory strategy in late 2013 through 15 2014 while Theranos continued to offer LDTs to retail patients. 16 81. By the time of Theranos’ financing round in 2014, FDA representatives told 17 Holmes that clearance or approval would be necessary for Theranos’ analyzer and tests. In late 18 2013 and throughout 2014, FDA representatives met with Holmes and sent letters to Theranos 19 stating that they did not believe Theranos was offering LDTs, and that even if Theranos was not 20 selling its miniLab or tests, FDA clearance or approval was necessary. Based on these 21 communications, Holmes agreed to submit all components of Theranos’ testing technology to 22 the FDA for clearance or approval. However, Holmes continued to raise additional funds while 23 telling investors Theranos was seeking FDA approval voluntarily. But Holmes knew, or was 24 reckless in not knowing, that FDA approval was necessary for Theranos’ analyzer and tests. 25 82. Holmes’ statements that Theranos did not need FDA approval or clearance were 26 important to investors because approval or clearance would have been an obstacle in the 27 company’s path to realizing full commercialization. 28 COMPLAINT SEC V. HOLMES, ET AL. -18- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01602 Document 1 Filed 03/14/18 Page 19 of 24 f. 1 2 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 3 4 83. Theranos included financial information in the investor binders that projected that 5 Theranos would generate over $100 million in revenues and break even in 2014. These 6 documents, which were drafted by Balwani, and which Holmes reviewed and shared with 7 potential investors, also represented that Theranos expected to generate approximately $1 billion 8 in revenues in 2015. 9 84. The projections further indicated that Theranos would obtain revenue from 10 several lines of business, including retail pharmacies (Pharmacy A and Grocery A), samples 11 collected from physicians’ offices, samples collected from hospitals, and pharmaceutical 12 services. 13 85. Holmes also provided historical financial information to one potential investor. 14 In August 2015, Holmes met with a potential investor, during which she provided Theranos’ 15 financial results for fiscal year 2014. These financials showed 2014 net revenues of $108 16 million, and 2015 and 2016 net revenue projections of $240 million and $750 million, 17 respectively. 18 86. But Theranos’ actual financial performance bore no resemblance to the financial 19 information Holmes shared with investors. Theranos recorded little more than $100,000 in 20 revenue in 2014 and was nowhere near generating $100 million in revenue by the end of 2014. 21 87. Holmes knew, or was reckless in not knowing, that Theranos sent different 22 financial information containing Theranos’ actual revenue numbers (a little over $100,000) to a 23 third-party valuation firm that it had retained to value the company’s common stock. Some of 24 Theranos’ projections, provided to potential investors in October 2014, stated Theranos would 25 earn $40 million from pharmaceutical services, $46 million from lab services provided to 26 hospitals, and $9 million from lab services provided to physicians’ offices, all by the end of 27 2014. In reality, Theranos had no revenues from any of those lines of business. 28 COMPLAINT SEC V. HOLMES, ET AL. -19- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01602 Document 1 Filed 03/14/18 Page 20 of 24 1 88. Holmes also knew, or was reckless in not knowing, that the 2015 $1 billion 2 revenue projections were unreasonable. By late 2014, Holmes knew Theranos’ roll outs in 3 Pharmacy A and Grocery A stores were not going as planned. Theranos and Holmes also knew 4 the company had made limited progress in advancing the other lines of business reflected in the 5 projections. Holmes knew that Theranos had no active discussions with pharmaceutical 6 companies, had partnered with only a handful of hospitals, and had no knowledge of any 7 contracts between Theranos and physicians’ offices. 8 9 10 11 89. impression that Theranos had already secured contracts to deliver these revenues and that the company’s business was growing rapidly. F. Theranos Exited the Commercial Laboratory Business in 2016, and By the End of 2017, Was On the Verge of Bankruptcy 90. In 2016, after regulatory inspections of Theranos’ clinical laboratories and 12 13 These financial projections were important to investors because they gave the 14 manufacturing facility, Theranos and Holmes exited the retail laboratory business and shifted the 15 company’s focus away from retail clinical testing and back to developing the miniLab. 16 Additionally, Grocery A and Pharmacy A terminated their relationships with Theranos. 17 91. In 2017, Theranos and Holmes settled a lawsuit with an investor that alleged it 18 was defrauded by Theranos. Theranos also settled a lawsuit with Pharmacy A, which brought an 19 action for breach of contract against the company. 20 92. In 2017, Theranos conducted a tender offer to recapitalize certain investors from 21 its later fundraising rounds. As part of that recapitalization, Holmes returned approximately 34 22 million of her shares to Theranos to prevent other investors from being diluted as a result of the 23 tender offer. As part of the tender offer, Theranos agreed not to take certain corporate actions – 24 including the decisions to issue new equity or amend the company’s bylaws – without a vote of 25 the majority of shareholders who invested during the relevant time period. 26 27 93. Due to the company’s liquidation preference, if Theranos is acquired or is otherwise liquidated, Holmes would not profit from her ownership until – assuming redemption 28 COMPLAINT SEC V. HOLMES, ET AL. -20- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01602 Document 1 Filed 03/14/18 Page 21 of 24 1 of certain warrants – over $750 million is returned to defrauded investors and other preferred 2 shareholders. 3 94. In late 2017, on the verge of bankruptcy, Theranos obtained a term loan, secured 4 on the value of Theranos’ patent portfolio, that it anticipated would allow the company to 5 continue work on the miniLab for approximately one year. 6 FIRST CLAIM FOR RELIEF 7 Violations of Section 10(b) of the Exchange Act and Rule 10b-5 8 By Both Defendants 9 95. 10 through 94. 11 96. The Commission re-alleges and incorporates by reference Paragraph Nos. 1 By engaging in the conduct described above, Defendants Holmes and Theranos, 12 directly or indirectly, in connection with the purchase or sale of securities, by the use of means or 13 instrumentalities of interstate commerce, or the mails, with scienter: 14 (a) Employed devices, schemes, or artifices to defraud; 15 (b) Made untrue statements of material facts or omitted to state material facts 16 necessary in order to make the statements made, in the light of the circumstances 17 under which they were made, not misleading; and 18 (c) Engaged in acts, practices, or courses of business which operated or would 19 operate as a fraud or deceit upon other persons, including purchasers and sellers 20 of securities. 21 97. By reason of the foregoing, Defendants violated, and unless restrained and 22 enjoined will continue to violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and 23 Rule 10b-5 thereunder [17 C.F.R. §§ 240.10b-5]. 24 25 26 27 28 COMPLAINT SEC V. HOLMES, ET AL. -21- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01602 Document 1 Filed 03/14/18 Page 22 of 24 1 SECOND CLAIM FOR RELIEF 2 Violations of Sections 17(a)(1), (2), and (3) of the Securities Act 3 By Both Defendants 4 98. 5 through 94. 6 99. The Commission re-alleges and incorporates by reference Paragraph Nos. 1 By engaging in the conduct described above, Defendants Holmes and Theranos, 7 directly or indirectly, in the offer or sale of securities, by use of the means or instruments of 8 transportation or communication in interstate commerce or by use of the mails, 9 (1) with scienter, employed devices, schemes, or artifices to defraud; 10 (2) obtained money or property by means of untrue statements of material fact or by 11 omitting to state a material fact necessary in order to make the statements made, 12 in light of the circumstances under which they were made, not misleading; and 13 (3) 14 15 16 engaged in transactions, practices, or courses of business which operated or would operate as a fraud or deceit upon purchasers. 100. By reason of the foregoing, Defendants violated, and unless restrained and enjoined will continue to violate, Section 17(a) of the Securities Act [15 U.S.C. §§ 77q(a)]. 17 18 PRAYER FOR RELIEF WHEREFORE, the Commission respectfully requests that this Court: 19 I. 20 Permanently enjoin Defendants Holmes and Theranos from directly or indirectly 21 violating Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], and Section 10(b) of the 22 Exchange Act [15 U.S.C. § 78j(b)], and Rule 10b-5 [17 C.F.R. § 240.10b-5] thereunder. 23 II. 24 Issue an order requiring Defendant Holmes to pay a civil monetary penalty pursuant to 25 Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d) of the Exchange Act 26 [15 U.S.C. § 78u(d)(3)]. 27 28 COMPLAINT SEC V. HOLMES, ET AL. -22- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01602 Document 1 Filed 03/14/18 Page 23 of 24 1 2 III. Issue an order requiring Defendant Holmes to return 18,897,137 Class B common stock 3 shares in Theranos to Theranos within 14 days of entry of judgment pursuant to the Court’s 4 equitable powers. 5 6 IV. Issue an order requiring Defendant Holmes to provide written notice to Theranos that she 7 elects to convert all shares of Class B common stock shares in Theranos to Class A common 8 stock shares, and take all necessary administrative actions to effectuate the conversion of these 9 Class B common stock shares to Class A common stock shares within 28 days of entry of 10 judgment pursuant to the Court’s equitable powers. 11 12 V. Prohibit Defendant Holmes from serving as an officer or director of any entity having a 13 class of securities registered with the Commission pursuant to Section 12 of the Exchange Act 14 [15 U.S.C. § 78l] or that is required to file reports pursuant to Section 15(d) of the Exchange Act 15 [15 U.S.C. § 78o(d)], pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)] and 16 Section 21(d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)]. 17 VI. 18 Retain jurisdiction of this action in accordance with the principles of equity and the 19 Federal Rules of Civil Procedure in order to implement and carry out the terms of all orders and 20 decrees that may be entered, or to entertain any suitable application or motion for additional 21 relief within the jurisdiction of this Court. 22 23 24 25 26 27 28 COMPLAINT SEC V. HOLMES, ET AL. -23- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01602 Document 1 Filed 03/14/18 Page 24 of 24 1 2 VII. 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. HOLMES, ET AL. -24- SECURITIES AND EXCHANGE COMMISSION 44 MONTGOMERY STREET, SUITE 2800 SAN FRANCISCO, CA 94104 ǁ (415) 705-2500 Case 5:18-cv-01602 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 ELIZABETH HOLMES and THERANOS, INC. (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-01602 Document 1-1 Filed 03/14/18 Page 2 of 2 ATTACHMENT TO CIVIL COVER SHEET Securities and Exchange Commission, Plaintiff v. ELIZABETH HOLMES and THERANOS, INC., Defendants. 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 Elizabeth Holmes John C. Dwyer, Esq. Shannon M. Eagan, Esq. Cooley LLP 3175 Hanover Street Palo Alto, CA 94304-1130 Telephone: (650) 843-5000 Facsimile: (650) 849-7400 Attorney for Defendant Theranos, Inc. Christopher Davies, Esq. Wilmer Cutler Pickering Hale and Dorr LLP 1875 Pennsylvania Avenue NW Washington, DC 20006 Telephone: (202) 663-6000 Facsimile: (202) 663-6363 ATTACHMENT TO CIVIL COVER SHEET