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Theranos CEO, former president charged with wire fraud; CEO steps down

A federal grand jury has indicted Elizabeth Holmes, founder and CEO of the blood testing company Theranos Inc., and the company's former president Ramesh Balwani, on wire fraud charges.

Holmes also stepped down as CEO and the company announced that its general counsel, David Taylor, would assume the role, CNBC reported. Holmes will remain the chair of the board.

Both Holmes and Balwani appeared in the U.S. Attorney's Office for the Northern District of California on June 15 as they were arraigned on two counts of conspiracy to commit wire fraud and nine counts of wire fraud related to their company's claim that its technology could run accurate tests on a drop of blood.

The charges stem from allegations that Holmes and Balwani engaged in a multimillion-dollar scheme to defraud investors and a separate plan to defraud doctors and patients, the attorney's office said in a statement.

"The defendants knew Theranos was not capable of consistently producing accurate and reliable results for certain blood tests," the attorney's office said. The Silicon Valley-based company had forged partnerships with doctors and retailers such as Walgreens Boots Alliance Inc. to administer their tests across the country rather than using traditional methods requiring vials of blood.

The indictment also claims that Holmes and Balwani made numerous misrepresentations to potential investors about Theranos' financial condition and its future prospects, including a claim that the company had a revenue-generating partnership with the U.S. Department of Defense that saw its technology used on the battlefield.

"This indictment alleges a corporate conspiracy to defraud financial investors," Special Agent in Charge John Bennett said. "This conspiracy misled doctors and patients about the reliability of medical tests that endangered health and lives."

Earlier this year, Holmes settled out of court with the U.S. Securities and Exchange Commission on fraud charges. As part of that settlement, she was barred from serving as a director or officer in any publicly traded company for 10 years.

Catherine Hermsen, the U.S. Food and Drug Administration's acting director for the Office of Criminal Investigations, thanked law enforcement "for sending a strong message to Theranos executives and others that these types of actions will not be tolerated."