Embattled blood-testing startup Theranos is now facing investor backlash.
San Francisco hedge fund Partner Fund Management has sued the company for securities fraud, saying that it used “a series of lies” to gain nearly $100 million in investment, according to the Wall Street Journal ,
The lawsuit marks yet another blow for Theranos, once heralded as an innovative Silicon Valley startup that promised to revolutionize blood tests by requiring only a single drop of blood. At one point, the company achieved a lofty $9 billion valuation based on its potential to shake up the blood testing industry.
But a series of reports published by the Wall Street Journal starting last year raised questions about the effectiveness of company’s secretive blood testing technology. Since then, Theranos has beeninvestigated by several government agencies, and in July, the Center for Medicare and Medicaid Services revoked the company’s license to operate and imposed a two-year ban on CEO Elizabeth Holmes from operating a lab.
Theranos has since voided all customer test results from its proprietary blood testing device from 2014 and 2015.Walgreens, the drugstore chain that hosted some of Theranos’ clinics cut ties with the company in June.
Last week, Theranosannounced that it would shut down its labs and “Wellness Centers” in Arizona, California, and Pennsylvania, leading to layoffs of 340 employees, or nearly half of its staff. In an open letter to customers and business partners, Holmes said Theranos would move away from operating blood-testing clinics and focus on a new device it plans to sell to healthcare providers.
Partner’s lawsuit, filed in Delaware Chancery Court, alleges that Holmes and Theranos’ COO, Sunny Balwani, lied to the hedge fund by overstating the types of tests the company’s technology was capable of handling. The hedge fund, which invested $96 million in Theranos in 2014, is seeking to recoup its investment plus legal costs, the report said.
“Through a series of lies, material misstatements, and omissions, the defendants engaged in securities fraud and other violations by fraudulently inducing PFM to invest and maintain its investment in the company,” Partner Fund Management said in the suit, according The Wall Street Journal’s report.
Theranos did not immediately respond to a request by Fortune for comment.
The company had raised $800 million from investors from other investors including DFJ, Continental Ventures, and ATA Ventures.