Theranos Dissolving: Health startup will pay off creditors from remaining cash and cease to exist


It looks like the end is near for a beleaguered Silicon Valley company. The move comes after a failed attempt by the company to sell itself, during which it reached out to more than 80 potential buyers through Jefferies Group.

Theranos, a blood-testing company embroiled in federal fraud charges against its founder and its COO, is formally dissolving, according to a story in The Wall Street Journal. The company sent an e-mail to shareholders explaining its dissolution and plan to pay out its remaining cash to creditors. The e mail from Chief Executive David Taylor also explained, “Unfortunately, none of those leads to buyers has materialized into a transaction. We are now out of time.” The letter was published by the WSJ.

Elizabeth Holmes, founder of the company, and Ramesh "Sunny" Balwani, the former chief operating officer, were charged with fraud. They were also accused of lying to investors about Theranos’s technological abilities. In March they were also charged by the Securities and Exchange Commission with "massive fraud,” as the SEC accused them of misrepresenting the company's abilities, financial health and connections to the Department of Defense. Holmes and Balwani have denied the charges and could be subject to decades in prison and huge fines. They face an upcoming criminal trial.

Holmes established the company in 2003 to develop technology to conduct clinical tests on small amounts of blood, but the Justice Department has claimed that the company could not make good on its  promises. The indictment said that Theranos gave doctors, who, in turn, gave patients "materially false and misleading information concerning the accuracy and reliability of Theranos's blood testing services." According to the Justice Department, Holmes and Balwani sent the results even though they knew that the tests were not reliable. Federal prosecutors also said that Holmes and Bahrani defrauded investors out of hundreds of millions of dollars.

The dissolution process was precipitated by the fact that Theranos breached a covenant governing a $65 million loan it received from Fortress Investment Group last year. Under the loan terms, Fortress was entitled to foreclose upon the company’s assets if its cash fell beneath a certain threshold.

In the email to shareholders, sent Tuesday, Theranos General Counsel and Chief Executive Officer David Taylor said the company is trying to negotiate a settlement with Fortress that would give the New York private-equity firm ownership of the company’s patents but leave its remaining cash—estimated at about $5 million—for distribution to other unsecured creditors.

Under a liquidation process known as “an assignment for the benefit of creditors,” getting that remaining cash to the unsecured creditors could take six to 12 months, Mr. Taylor said in the email. Most of Theranos’s two-dozen remaining employees worked their last day on Friday, Aug. 31. Only Mr. Taylor and a handful of support staff remain on the payroll for a few more days.


Leave a Comment

Please fill the form below to post a comment.