Elizabeth Holmes, the college dropout who founded the blood-testing company Theranos, and the firm's ex-president Ramesh "Sunny" Balwani were indicted Friday on criminal charges related to false claims they made about the accuracy of their much-hyped testing devices.
Both Holmes, who stepped down as CEO of the financially crippled company earlier Friday, and Balwani appeared in U.S. District Court in San Jose, California, for arraignment on two counts of conspiracy to commit wire fraud and nine counts of wire fraud.
Both Holmes and Balwani, who surrendered Friday to the FBI, were released on $500,000 bond each and ordered to surrender their passports at the arraignment, which was attended by Holmes' parents.
The indictment accuses Holmes, 34, and then 53-year-old Balwani of engaging in a multimillion-dollar scheme to defraud investors, and a separate scheme to defraud doctors and patients.
Both schemes involved efforts to promote Theranos by wildly overstating the technological capability of Theranos' blood-testing machines, as well as the company's revenue prospects and business contractual relationships, according to federal prosecutors.
Holmes and Balwani face up to 20 years in prison if convicted.
Theranos in 2013 had begun touting its devices as offering a less expensive and less painful option for drawing blood, from a finger stick.
The company, which at one point had a valuation of $9 billion, also claimed the devices would be able to test for a wide range of health conditions from just a few drops of blood.
Alex Tse, acting United States Attorney for the Northern District of California, said the alleged conspiracy of the duo "not only defrauded investors" but "more egregiously ... misled doctors and patients about the reliability of medical tests that endangered health and lives."
Tse's office said that Holmes and Balwani made claims in ads and solicitations to induce doctors and patients to use Theranos' blood-testing, "even though the defendants knew Theranos was not capable of consistently producing accurate and reliable results for certain blood tests."
"The tests performed on Theranos technology, in addition, were likely to contain inaccurate and unreliable results," the prosecutors' office said.
The indictment says that Holmes and Balwani also made "numerous misrepresentations to potential investors about Theranos' financial condition and its future prospects."
Those lies included claiming that the company used Theranos-made analyzers for patient tests when it was actually using third-party devices that were commercially available.
"The defendants also represented to investors that Theranos would generate over $100 million in revenues and break even in 2014 and that Theranos expected to generate approximately $1 billion in revenues in 2015 when, in truth, the defendants knew Theranos would generate only negligible or modest revenues in 2014 and 2015," according to the U.S. Attorney's Office.