Palo Alto-based Theranos Inc. made headlines with their promises of rapid, inexpensive blood screening services, but the company is now accused of perpetrating massive consumer fraud. The promised service sounded good on paper; as of 2014, the company had raised more than $400 million in investment capital, which helped drive the value of the company to over $9 billion. However, subsequent studies conducted by the FDA and independent investigators determined that Theranos Inc.’s products did not function the way they were advertised. Following news of the fraud and subsequent investigations, the company’s value has dropped from $9 billion to less than $800 million.
When Lies Accumulate
It is rare for a consumer fraud attorney to see a company get caught by a single lie or shortcoming. It’s often a series of lies and a pattern of deliberately misleading investors and partners that ultimately ensnare perpetrators. In the case of Theranos, partners such as Walgreens were also caught up in the fraud. The company had signed a contract with Theranos to provide testing services within the company’s international chain of pharmacies.
Theranos failed to deliver and Walgreens has since sued the company for breach of contract. After investors and consumers, it is companies who have signed contracts with perpetrators of fraud who most commonly file suit for consumer fraud.
Pursuing Consumer Fraud Claims
The Theranos case is similar to many other suits in that the company continued to raise funding even as internal testing and documentation showed that the products did not function the way they were being advertised. Indeed, while the company promised the ability to run hundreds of different tests for blood-borne pathogens, only a few of these actually functioned properly.
Like many consumer fraud cases, this information only came to light when internal documents were leaked outside the company. Investors in similar cases similar can pursue claims for violating securities and competition laws if they believe a company has deliberately hidden information that shows the products are not functioning the way they are promoted.
Federal Penalties Add Up
In addition to the civil claims companies such as Theranos can face, federal penalties can also be levied. Theranos has faced sanctions from Medicare and Medicaid, and company founder Elizabeth Holmes has been banned from owning or operating a lab for the next two years.