Latest news follows reports that Theranos was facing sanctions that include revoking its CLIA license and a two-year ban on its executives Holmes and Balwani and its former medical director, Dhawan

Federal prosecutors began a criminal investigation into whether Theranos misled investors about its medical laboratory technology and operations, The Wall Street Journal (WSJ) reported on Monday evening.

Investigators recently sent subpoenas to Walgreens Boots Alliance Inc. (NASDAQ: WBA) and the New York State Department of Health (NYSDOH) seeking documents and testimony about statements Theranos made, according to WSJ reporters Christopher Weaver, John Carreyrou, and Senior Editor Michael Siconolfi. As sources, the WSJ cited unnamed people familiar with the matter.

Theranos Disclosed Government Investigations to Its Partners

Also on Monday, Bloomberg reported that Theranos sent a memo to its partner companies Walgreens and others. In the memo, Theranos said the U.S. Securities and Exchange Commission (SEC) and the U.S. Attorney’s Office for the Northern District of California were investigating the company, according to a Bloomberg article by Sheelah Kolhatkar and Caroline Chen.

For The Verge, Jacob Kastrenakes published a memo that included the statement Theranos had sent to its partners and relevant parties. Kastrenakes wrote in his memo that Theranos said, “The company continues to work closely with regulators and is cooperating fully with all investigations.” In addition to the SEC, the Centers for Medicare and Medicaid Services (CMS), the U.S. Food and Drug Administration (FDA), and the California and Pennsylvania state health departments, have all investigated the company, Bloomberg reported. The FDA, California, and Pennsylvania inquiries were completed successfully, the Verge memo said.

The news of these other government investigations comes one week after it was reported that CMS planned to impose sanctions that would include revoking the company’s CLIA certificate. CMS also was considering fining Theranos Inc., of Palo Alto, Calif., as much as $10,000 per day, suspending or cancelling the lab’s approval to receive Medicare payments, and banning company executives from owning or operating a clinical laboratory for two years. Those executives facing the ban are founder/CEO Elizabeth Holmes, owner/President/COO Ramesh Sunny Balwani, and former Medical Director Sunil Dhawan, MD, CMS said.

Elizabeth Holmes Interviewed by Television Morning Show

On Monday morning, Holmes was interviewed in a Theranos lab for the Today Show. “I feel devastated that we did not catch and fix these issues faster,” she told reporter Maria Shriver.

In the subpoenas, investigators from the SEC and NYSDOH sought broad information about how Theranos described and was developing its technology, the WSJ reported. Investigators also wanted to know if Theranos misled government officials, sources told the WSJ.

In addition to facing a criminal investigation, Theranos also is getting questions from the SEC about whether it used deceptive statements to solicit funding from investors, sources told the WSJ. Investors have put $750 million into the company, which was valued at $9 billion two years ago. At the time, Holmes held a majority stake, the WSJ reported.

In a letter sent from CMS dated March 18, CMS said Theranos had 10 days to respond by providing evidence of why the sanctions should not be imposed, the WSJ reported.

Elizabeth Holmes (above), CEO/Owner, Theranos. In an interview with Maria Shriver, NBC, Holmes said, “I’m the founder and CEO of this company. Anything that happens in this company is my responsibility, at the end of the day.” (Photo copyright: New York Times.)

Elizabeth Holmes (above), CEO/Owner, Theranos. In an interview with Maria Shriver, NBC, Holmes said, “I’m the founder and CEO of this company. Anything that happens in this company is my responsibility, at the end of the day.” (Photo copyright: New York Times.)

CMS Letter Stated that Medical Lab Company ‘Had Not Abated Immediate Jeopardy’

In the March 18 letter, CMS wrote to Theranos that: “After careful review, we have determined that the laboratory’s submission does not constitute a credible allegation of compliance and acceptable evidence of correction for the deficiencies cited during the CLIA recertification and complaint survey completed on December 23, 2016, and does not demonstrate that the laboratory has come into Condition-level compliance and abated immediate jeopardy.” (See Dark Daily, “CMS Notifies Theranos of CLIA Sanctions That Include Revoking Clinical Laboratory’s CLIA License and a Two-Year Ban on Holmes, Balwani, and Dhawan,” April 14, 2016.)

The March 18 letter states that CMS is aware that Dhawan was the medical director when CMS inspected the laboratory last fall and found the deficiencies in question. CMS knows that Dhawan has since left the company, the letter said. “However, because Dr. Dhawan was the laboratory director at the time of CLIA recertification and complaint survey concluded on Dec. 23, 2015, we will continue to hold Dr. Dhawan responsible for all CLIA deficiencies cited,” the six-page CMS letter said.

CLIA Inspection of Theranos’ Clinical Laboratory in Newark, California

CMS conducted a CLIA recertification and complaint survey at Theranos, Inc., in November. “The onsite portion of the survey was completed on November 20, 2015; however, the survey concluded with the receipt of critical information received from the laboratory on December 23, 2015,” the letter said.

In response to the CMS letter of March 18, Brooke Buchanan, Theranos’ Vice President of Communications, wrote, “Quality and patient safety is our top priority. Theranos submitted a Plan of Correction to CMS and related evidence that addressed how the company has actively ensured that our lab operates at the highest standard. We’ve made mistakes in the past in the Newark, CA lab, but when the company was made aware of the deficiencies we have dedicated every resource to remedy those failures.” Buchanan continues with an explanation of the actions addressing the findings of CMS.

In conclusion, Buchanan wrote, “We will continue to work with CMS to ensure every issue has been fixed completely. We recognize the critical role they play in the laboratory industry, and will continue our work to implement best-in-class policies and procedures. Theranos shares the same goal as CMS, which is to provide best quality care to our patients. This has only made the company stronger and we are better for it today.”

Public disclosures of investigations by the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) into the activities of Theranos and its executives is the latest hammer blow to a company that has said its business strategy is to fully disrupt the clinical laboratory testing industry. That is one reason why pathologists and clinical laboratory managers have paid close attention to this story, particularly following the news in recent weeks that CMS was prepared to impose serious sanctions against Theranos for violations of CLIA.

Given the most recent disclosures of investigations by two more federal agencies, there are journalist who believe that Theranos and its executive team have multiple major crises on their hands. But that may not be the end of the bad news. There is the possibility of civil lawsuits, possibly by investors who believe that Theranos officials and their financial consultants misrepresented the facts when soliciting investments. Another possibility is a class action lawsuit representing patients, based on news accounts of possible flaws and inaccuracies in the medical laboratory test results reported to patients.

—Joseph Burns

Related Information:

Theranos Is Subject of Criminal Probe by U.S.

Theranos is Reportedly Under Criminal Investigation in the US

Theranos Under Investigation by SEC, U.S. Attorney’s Office

Theranos CEO Elizabeth Holmes: I’m ‘devastated’ About Blood Test Issues

Theranos CEO Elizabeth Holmes Says She’s ‘Devastated’ by Setbacks

Theranos Statement on CMS 2567 Report

January 25, 2016, CMS Letter to Sunil Dhawan, MD, Director Theranos CLIA Laboratory, Newark, California

March 18, 2016, CMS Letter to Sunil Dhawan, MD; Elizabeth Holmes; and, Ramesh Balwani

Regulators Propose Banning Theranos Founder Elizabeth Holmes for at Least Two Years

Theranos Under Fire as U.S. Threatens Crippling Sanctions

Theranos Founder Elizabeth Holmes Is Facing a Ban by Regulators

CMS Notifies Theranos of CLIA Sanctions That Include Revoking Clinical Laboratory’s CLIA License and a Two-Year Ban on Holmes, Balwani, and Dhawan