When Theranos founder Elizabeth Holmes announced that the company was shifting its focus, she said her team is lucky to have investors who believe in its mission. But there's at least one major investor who doesn't, and it has already sued the controversial blood-testing provider. According to The Wall Street Journal, Partner Fund Management (PFM) LP is accusing the startup of convincing it to pour $100 million into the startup by feeding it a "series of lies." The San Francisco-based hedge fund firm filed the lawsuit in Delaware today and sent out a letter to its own investors.
In the letter, the firm said:
"Through a series of lies, material misstatements, and omissions, the defendants (Theranos), engaged in securities fraud and other violations by fraudulently inducing PFM to invest and maintain its investment in the company."
It went on to say that Holmes and former COO Sunny Balwani deceived PFM by claiming that their proprietary technologies were close to getting regulatory approval. PFM was reportedly told that Theranos' proprietary machine called Edison was capable of performing more types of tests than it actually was. The fund also accuses Holmes and co. of overstating their capabilities to meet the Walgreens' demands. Walgreens, if you'll recall, used to offer Theranos blood tests in its drugstores. Thus, the fund has formally filed a case against the startup for engaging in securities fraud, negligent misrepresentation and violations of the Delaware deceptive trade practices act.
A company spokesperson told the WSJ that it will fight the lawsuit:
"[T]he suit is without merit and Theranos will fight it vigorously. The company is very appreciative of its strong investor base that understands and continues to support the company¹s mission."
Theranos has been in hot water ever since the FDA investigated claims that put its practices into question and the WSJ published its outcome. While the company promised results with just a drop of blood, the WSJ found reports showing that it only did a handful of tests on Edison -- the rest were done on traditional machines. Since then, Balwani left the company, Walgreens ended their partnership and Holmes was banned from running a lab for two years. Holmes also shut down its clinics and Wellness Centers in early October, letting 340 employees go in the process. The company still isn't completely dead, though. It recently debuted a new proprietary device called miniLab and now plans to focus on its development.
As for Partner Fund Management, it's now seeking to recoup its $100 million investment with damages on top.