When I first read this headline I was thinking "Uh oh, Theranos must have very badly handled its interactions with FDA". But this is apparently the SEC investigating the company.
Does anyone know how often the SEC investigates a private company with a product that's still essentially in beta testing?
The SEC is getting more aggressive about regulating large pseudo-public companies that haven't had a formal IPO, but which have many "qualified" investors.[1] Mutual funds now invest in these companies, which means ordinary investors are at risk.
The SEC chair on "unicorns": "It is axiomatic that all private and public securities transactions, no matter the sophistication of the parties, must be free from fraud. Exchange Act Section 10(b) and Rule 10b-5 apply to all companies and we must be vigorous in ferreting out and punishing wrongdoers wherever they operate. In the unicorn context, there is a worry that the tail may wag the horn, so to speak, on valuation disclosures. The concern is whether the prestige associated with reaching a sky high valuation fast drives companies to try to appear more valuable than they actually are."
The criminal probe is separate from the SEC actions -- The SEC can only refer criminal cases to the DOJ, they have no criminal enforcement arm themselves.[1]
In addition to the criminal probe, the Securities and Exchange Commission is examining whether Theranos made deceptive statements to investors when it solicited funding, according to people familiar with the matter.
So in addition to the criminal probe instigated by the DOJ, the SEC is investigating for securities issues.
Well, if it can be shown that they lied or omitted material information in the course of soliciting equity investments, that's a Rule 10b-5 violation, the SEC's big club. The fact that Theranos is a private company is immaterial, as is the possibility that none of its investors may have complained.
Theranos has at least two mainstream venture funds among its investors. These funds have limited partners, most of which are fairly famous institutions (including big-name universities). These LPs hate to see their money squandered -- and they may feel a legal obligation to raise a ruckus.
Respectfully, that's a nonsense point of view. The investors want to get as much of their investment back as possible, or, if they've given up on that, they at least don't want to be seen as having invested in criminals.
If they have concluded that their was some kind of fraud involved then having the government investigate and expose the facts is a lot easier and cheaper for them. They will then be free to use those facts to recover money.
They're the owners of the company; they're already entitled to their share of whatever's left.
Institutional investors are a lot more worried about the (additional) reputational damage, from having invested with criminals, than they are about recovering fractions of fractions of fractions of pennies on the dollar by raiding Elizabeth Holmes' personal bank account.
Does anyone know how often the SEC investigates a private company with a product that's still essentially in beta testing?